Keynes, Uncertainty and the Global Economy
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Keynes, Uncertainty and the Global Economy

Beyond Keynes, Volume Two

Edited by Shelia C. Dow and John Hillard

The revival of interest in Keynesian economics since the late 1980s reinstates the importance of Keynes’s contribution to economic theory and policy. This is the second of two volumes in which authoritative contributions are presented by an outstanding group of international experts to celebrate Keynesian economics, and to review and further the developments of post Keynesian economics of recent years.
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Chapter 8: The role of econometrics in a radical methodology

Beyond Keynes, Volume Two

Bill Gerrard


8. Classical liberalism in an environment of rational choice involving commitment and security as well as greed M.C. Howard and R.C. Kumar1 I INTRODUCTION This chapter examines the liberal theory of voluntary contract and violent conflict. Section II provides an outline of the theory, followed by five sections that subject it to criticism. The standard of evaluation throughout is rational choice analysis, and four deficiencies are emphasized: private information, bounded rationality, indivisibilities and the absence of other Debreuvian characteristics in goods. In section VIII we conclude by discussing some of the implications of our results. II LIBERALISM ON VOLUNTARY EXCHANGE AND VIOLENT CONFLICT From the very beginning, liberalism has celebrated voluntary contract on the grounds that violent predacity necessarily involves deadweight losses, while mutual gains can result from specialization joined to exchange.2 Coupled with claims justifying very specific forms of egalitarianism, these arguments have affirmed the efficiency and justice of free market relations organized on capitalist lines. Social contract theories of political authority have also been similarly founded, and even a ‘withering away’ of centralized states has been entertained as feasible by some liberals, thereby allowing markets to organize human activities comprehensively.3 Recent results in game theory can be woven together in support of these positions. We might sketch the liberal case in the following way. Imagine a set of agents, each of whom has preferences representable by a continuous utility function that is defined over the same divisible commodities. All agents face the...

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