Globalization, Economic Development and Inequality

Globalization, Economic Development and Inequality

An Alternative Perspective

New Horizons in Institutional and Evolutionary Economics series

Edited by Erik S. Reinert

The expert contributors gathered here approach underdevelopment and inequality from different evolutionary perspectives. It is argued that the Schumpeterian processes of ‘creative destruction’ may take the form of wealth creation in one part of the globe and wealth destruction in another. Case studies explore and analyse the successful 19th century policies that allowed Germany and the United States to catch up with the UK and these are contrasted with two other case studies exploring the deindustrialization and falling real wages in Peru and Mongolia during the 1990s. The case studies and thematic papers together explore, identify and explain the mechanisms which cause economic inequality. Some papers point to why the present form of globalization increases poverty in many Third World nations.

Chapter 1: The Other Canon: The History of Renaissance Economics

Erik S. Reinert and Arno M. Daastøl

Subjects: economics and finance, evolutionary economics, welfare economics


Erik S. Reinert and Arno M. Daastøl 1. TYPOLOGIES OF ECONOMIC THEORY AND THE FOUNDATION OF THE TWO CANONS It has been said that economics as a science – or pseudoscience – is unique because parallel competing canons may exist together over long periods of time. In other sciences, periodic gestalt-switches terminate old theoretical trajectories and initiate new ones. In a paradigm shift, the scientific world moves from a situation in which everyone knows that the world is flat to a new understanding that the world is round (Kuhn 1970). This occurs in a relatively short time. In economics, the theory that the world is flat has been coexisting for centuries with the theory that the world is round. In this essay we shall argue for the existence of an alternative to today’s mainstream theory: the continuation of the canon that dominated the worldview of the Renaissance – The Other Canon. Using a metaphor from Kenneth Arrow, ‘this tradition acts like an underground river, springing to the surface every few decades’.1 We argue that during the Cold War the ‘underground river’ of Renaissance Other Canon economics all but disappeared from economic theory, and that it is time to reintroduce it. Traditionally, The Other Canon has been resurrected in times of crisis, such as national emergencies, which bring production – not barter – into focus. This occurs, for example, when an exclusive focus on barter has caused financial bubbles that subsequently burst, when nations are engaged in serious catching up with the prevailing world...

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