Social and Behavioral Sciences Commons^™

Recent Engagements With Adam Smith And The Scottish Enlightenment, Maria Paganelli

Maria Pia Paganelli

Recent literature on Adam Smith and other eighteenth-century Scottish thinkers shows an engaged conversation between the Scots and today's scholars in the sciences that deal with humans-the social sciences and the humanities, as well as neuroscience and evolutionary psychology. We share with the eighteenth-century Scots preoccupations about understanding human beings, human nature, sociability, moral development, our ability to understand nature and its possible creator, and about the possibilities to use our knowledge to improve our surroundings and standard of living. As our disciplines evolve, the studies of Smith and the Scottish Enlightenment evolve with them. Smith and the Scots remain …

Banks And Trust In Adam Smith, Maria Paganelli

Maria Pia Paganelli

One can see banking as a mediating institution based on trust. In a small pre-commercial society, trust is personal and credit markets quite limited and based on personal knowledge. In larger commercial societies, credit markets tend to expand, but this is not possible if they are based only on personal trust. This is because of the difficulties of getting to know every customer in a large and impersonal society. Institutional trust needs to supplement personal trust. One trusts a bank and/ or the banking system more than the individual teller in the bank, and the bank trusts credit scoring and …

Commercial Relations: From Adam Smith To Field Experiments, Maria Paganelli

Maria Pia Paganelli

Adam Smith is often referred to as the father of economics and as a promoter of free markets. In what follows, I let the first claim stand and concentrate on the second: that Adam Smith is a promoter of free markets. In particular, I take for granted, with all the necessary caveats, that Smith is a promoter of free markets (but cf. e.g. Fleischacker 2004 ; McLean 2006 ) and concentrate on how Smith promotes free markets. Smith promotes free markets for at least two reasons: efficiency and morality. There is already a vast and detailed literature on the economic …

Are Self-Made Men Made Equally? An Experimental Test Of Impartial Redistribution And Perceptions Of Self-Determination, David Chavanne, Kevin Mccabe, Maria Paganelli

Maria Pia Paganelli

Using a laboratory experiment, we examine if third party redistribution from a “Have” to a “Have-not” is affected by (1) whether a Have’s advantage is in some way self-determined and (2) whether self-determination occurs in two dimensions compared to one dimension. We find that redistribution decreases if a Have earns an advantageous opportunity or earns income. But we also find that redistribution does not decrease any further if a Have earns both an opportunity and income. These results suggest that, in line with existing work, the perception that advantages are self-determined matters for redistribution. But the results also suggest that, …

Adam Smith And The History Of Economic Thought: The Case Of Banking, Maria Paganelli

Maria Pia Paganelli

Adam Smith promotes markets because of their efficiency and because of their ability to develop and support moral social life. His views on banking are an example of his broader view. According to Smith banks should be allowed to issue their own money and compete in a minimally regulated environment. On the one hand, competition, including the possibility of bank failures, generates discipline, and discipline generates prudent behavior. On the other hand, competition in the banking sector is generated and maintained by prudent behavior. The prudent behavior of morally responsible banks is rewarded with economic success and it supports the …

Vanity And The Daedalian Wings Of Paper Money In Adam Smith, Maria Paganelli

Maria Pia Paganelli

Adam Smith presents a detailed technical analysis of both private and public credit. Many contemporaries, including David Hume, recognized that public credit, and in part private credit, could be used to affect the economy, either for good or bad. Nevertheless, Smith does not seem to recognize the full potential of public credit as a policy instrument whether as a way to stimulate the economy, fine-tune it, or cause economic disasters. The reason for this shortcoming may be Smith's downplaying the desire for power and benevolence as motivational forces in human conduct, due to his emphasis on vanity instead.

Economies In Transition And In Development: A Possible Warning From Adam Smith, Maria Paganelli

Maria Pia Paganelli

Adam Smith was concerned with the nature and causes of economic growth and development. One may therefore ask if it is possible to use his work, even if only as speculation, in order to gather useful insights about today’s developing or transitional economies. With all the due caveats, this paper asks: if Adam Smith were alive today, what would he say about transitioning and developing economies? Testing whether Adam Smith would be correct in his analysis, I leave to other work.

Adam Smith On Money, Mercantilism And The System Of Natural Liberty, Ryan P. Hanley, Maria Pia Paganelli

Maria Pia Paganelli

Adam Smith’s theory of money played a key role in his development of one of the conclusions for which he is most famous today: the superiority of the system of natural liberty to mercantilism. This essay examines the part played by money in this argument, and specifically Smith’s theory of money’s origins and evolution and its relevance to his theory of natural liberty. The essay goes on to show how his position contributes to his critique of mercantilism and other proto-monetary policies as illustrative of his wider objection to interventionism, in conjunction with his understanding of the ‘science of the …

Adam Smith And Entangled Political Economy, Maria Paganelli

Maria Pia Paganelli

Entangled Political Economy, the idea that the economy and the polity are a nexus of interrelations often with unplanned outcomes, is close to the concept of economics that Adam Smith presents, a concept which was not shaped by strict discipline barriers. I show that Adam Smith analyzes the nature and causes of the wealth of nations by analyzing the interaction of the economy with politics, ethics, and the law. In particular, Smith presents each of these systems as a network of relations with all the other systems: the economy is entangled not just with the polity, but also with other …

Smithian Answers To Some Experimental Puzzles, Maria Paganelli

Maria Pia Paganelli

This paper draws attention to the increased use of Adam Smith’s work in the experimental economics literature. It also offers examples of how studying Adam Smith can help formulate possible answers to some otherwise counter-intuitive (if the intuition is based on the Rational-Choice paradigm) experimental results. The first part of the paper presents a short account of how, in recent years, the field has come to recognize the importance of considering other-regarding preferences as well as self-regarding preferences and how it is noticing the wealth of Adam Smith, who dealt with both. The central section of the paper offers examples …

In Medio Stat Virtus: An Alternative View Of Usury In Adam Smith’S Thinking, Maria Pia Paganelli

Maria Pia Paganelli

Some specific positions of Adam Smith have been, and still are, sources of problems and debates. Generally, the controversies concern apparent contradictions in the Smithian theory. An example of these puzzling contradictions in Smith is his position on usury laws:

In countries where interest is permitted, the law, in order to prevent the extortion of usury, generally fixes the highest rate which can be taken without incurring a penalty. This rate ought always to be somewhat above the lowest market price, or the price which is commonly paid for the use of money by those who can give the most …

Adam Smith: Il Primo O L'Ultimo?, Maria Paganelli

Maria Pia Paganelli

No abstract provided.

Whose Money Is It Anyway? Ingroups And Distributive Behavior, David Chavanne, Kevin Mccabe, Maria Paganelli

Maria Pia Paganelli

Price theory is often used to explain reactions to rebates and subsidies that are meant to encourage charitable giving. This paper describes the results of a laboratory experiment that tests standard price theory alongside an alternative perspective based on research on the perceptions and behavior of ingroups. Using a modified dictator game, we find that rebates that decrease the price of giving only increase amounts given when they are exogenously funded by the experimenters. When rebates are funded by members of one’s group, the decreased price of giving does not lead to increased amounts given. The result suggests that the …

The Same Face Of The Two Smiths: Adam Smith And Vernon Smith, Maria Paganelli

Maria Pia Paganelli

No abstract provided.

Is A Beautiful System Dying? A Possible Smithian Take On The Financial Crisis And Its Aftermath, Maria Pia Paganelli

Maria Pia Paganelli

Adam Smith is not an optimistic describer of a providential order moved by an always-successful invisible hand. I present some of the more pessimistic analysis of Smith, which, unfortunately, seems to be most appropriate to describe and analyze our current affairs. This reading of Smith may provide an explanation for the events started in the fall of 2008. The ‘beautiful system of natural liberty’ that Smith describes is a system that may be achieved only under rare circumstances. Smith recognizes systematic biases in human behaviours, ranging from overestimation of probability of success to almost blind admiration for the rich. He …

David Hume On Monetary Policy: A Retrospective Approach, Maria Pia Paganelli

Maria Pia Paganelli

Monetary policy is a modern idea of which David Hume is generally considered a precursor. Moreover, thanks to Milton Friedman and Robert Lucas, he is often presented as one of the first and most illustrious endorser of monetarism. This paper argues against this view, and in agreement with Joseph Schumpeter, that Hume’s contribution to economics, while not insignificant, cannot claim any real novelties. It offers an interpretation of Hume as a descendant of a pre-modern understanding of money rather than a forerunner of modern monetary ideas, and as a scholar exposing common ideas of his time rather than a prophet …

'The Good Policy Of The Magistrate': Deflation As A Policy Option In David Hume's Economic Essays, Maria Pia Paganelli

Maria Pia Paganelli

In his 1752 essay Of Money, David Hume proposes that a good policy for a magistrate would be to keep money still encreasing. This paper proposes that, for Hume, money can be kept still encreasing through deflationary policies, rather than through inflationary policies as commonly presented in the literature. Decreasing the quantity of money in circulation in an open economy decreases prices and gives a competitive edge to the country's products. The increase in exports keeps money still encreasing. Deflation may be achieved through the promotion of hoarding and non-monetary uses of precious metals. The position of this paper is …

Adam Smith: Why Decentralized Systems?, Maria Paganelli

Maria Pia Paganelli

No abstract provided.

Endogenous Money And David Hume, Maria Paganelli

Maria Pia Paganelli

David Hume's monetary theory has two standard yet inconsistent readings. As a forefather of the quantity theory of money, Hume sees money as neutral. As an inflationist, Hume sees an active positive role for monetary policy. This paper reads Hume consistently instead, by showing that for Hume money is endogenous and demand driven. Hume would read the money equation as reverse causation and the co-presence of inflation and output growth as driven by demand. The 18th century knowledge of monetary theory corroborates this reading.

The Causal Effect Of Market Priming On Trust: An Experimental Investigation Using Randomized Control, Omar Al-Ubaydli, Daniel Houser, John Nye, Maria Paganelli, Xiaofei Pan

Maria Pia Paganelli

We report data from laboratory experiments where participants were primed using phrases related to markets and trade. Participants then participated in trust games with anonymous strangers. The decisions of primed participants are compared to those of a control group. We find evidence that priming for market participation affects positively the beliefs regarding the trustworthiness of anonymous strangers and increases trusting decisions.

Approbation And The Desire To Better One’S Condition In Adam Smith: When The Desire To Better One’S Conditions Does Not Better One’S Condition And Society’S Condition…, Maria Paganelli

Maria Pia Paganelli

No abstract provided.

Scottish Enlightenment And Public Governance Of The Economic System, Maria Pia Paganelli

Maria Pia Paganelli

This paper questions the idea that natural, in the natural system of liberty Adam Smith describes, means inevitable, normal, or perfect. For Smith, what is natural in a natural system that governs the economy seems to be a normative prescription.

Theory Of Moral Sentiments 1759 Vs Theory Of Moral Sentiments 1790: A Change Of Mind Or A Change Of Constraints?, Maria Paganelli

Maria Pia Paganelli

The 1790 edition of Adam Smith’s Theory of Moral Sentiments presents significant changes from the 1759 edition. In the 1790 edition Smith seems critical of the moral consequences of commerce. By focusing exclusively on the approbation generated by showing of material possession, I propose that the 1790 edition is just an updated edition of the 1759, and does not represent a change of mind Smith had. Writing The Wealth of Nations Smith realizes the constraints in poor pre-commercial societies are diferent from the constraints in rich commercial societies and therefore behaviors and consequences will differ. The apparent contrast between the …

The Same Face Of The Two Smiths: Adam Smith And Vernon Smith, Maria Pia Paganelli

Maria Pia Paganelli

No abstract provided.

David Hume On Public Credit, Maria Pia Paganelli

Maria Pia Paganelli

In his essay Of Public Credit, David Hume argues against the institutionalization of public credit. Contrary to what is commonly believed, I claim Hume’s analysis of public credit is sound and it is an example of his worst-case thinking. Through textual and contextual analysis, I show for Hume public credit brings catastrophic results because men are knaves, systematically biased, and unlucky. Public credit is an appropriate institution to stimulate the economy only if men are perfect and perfectly predictable. But they are not. For Hume, considering the worst-case rather than the best-case helps prevent potential disasters. Public credit should therefore …

The Adam Smith Problem In Reverse: Self-Interest In Adam Smith’S Wealth Of Nations And Theory Of Moral Sentiments, Maria Paganelli

Maria Pia Paganelli

In identifying the tensions between the two treatises that Adam Smith (1723-90) published during his lifetime' - The Theory of Moral Sentiments' (1759) and 'The Wealth of Nations(1776) - 'it can be seen that the first is more favorable to self-interest. The author presents the effects of self-interest under ideal conditions, examines some of the abuses of self-interest, and describes how Smith deals with abuses of self-interest. Smith's first, lesser known treatise paints a picture of self-interest that more closely resembles that portrayed in modern economics: both the individual and society are better off when individuals pursue self-interest. In fact, …

'The Good Policy Of The Magistrate': Deflation As A Policy Option In David Hume's Economic Essays, Maria Pia Paganelli

Maria Pia Paganelli

In his 1752 essay Of Money, David Hume proposes that a good policy for a magistrate would be to keep money still encreasing. This paper proposes that, for Hume, money can be kept still encreasing through deflationary policies, rather than through inflationary policies as commonly presented in the literature. Decreasing the quantity of money in circulation in an open economy decreases prices and gives a competitive edge to the country's products. The increase in exports keeps money still encreasing. Deflation may be achieved through the promotion of hoarding and non-monetary uses of precious metals. The position of this paper is …

Are Two Knaves Better Than One? Every Man A Knave: Hume, Buchanan, And Musgrave's View On Economics And Government, Andrew Farrant, Maria Paganelli

Maria Pia Paganelli

It is commonplace to view market agents as self-interested knaves, while government agents are either as knaves or public-spirited angels. What are the consequences of these different motivational assumptions in modeling governmental and market behavior? We compare David Hume, James M. Buchanan, and Richard Musgrave. We claim that Hume, the only one thinking consistently in terms of the worst-case, offers a second best solution for both the government and the economy, which may turn out to be the best possible solution given human nature. Because of the reciprocal check, two knaves are better than one. More is preferred to less …

'The Good Policy Of The Magistrate': Deflation As A Policy Option In David Hume's Economic Essays, Maria Pia Paganelli

Maria Pia Paganelli

In his 1752 essay Of Money, David Hume proposes that a good policy for a magistrate would be to keep money still encreasing. This paper proposes that, for Hume, money can be kept still encreasing through deflationary policies, rather than through inflationary policies as commonly presented in the literature. Decreasing the quantity of money in circulation in an open economy decreases prices and gives a competitive edge to the country's products. The increase in exports keeps money still encreasing. Deflation may be achieved through the promotion of hoarding and non-monetary uses of precious metals. The position of this paper is …

The Moralizing Distance In Adam Smith: The Theory Of Moral Sentiments As Possible Praise Of Commerce, Maria Pia Paganelli

Maria Pia Paganelli

No abstract provided.