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1 - MARKETS AND GOVERNMENTS

Arye L. Hillman
Arye L. Hillman
Affiliation:
Bar-Ilan University, Israel
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Summary

The most important question in the study of economics is:

When should a society forgo the economic freedom of markets and rely on the public finance and public policy of government?

This is a normative question. A normative question asks what ideally should be done or what ideally should happen. Normative questions are distinct from positive questions, the answers to which are predictions and explanations. The primary positive question that we shall ask is:

What do we predict will be the outcome when voters and taxpayers delegate responsibilities to governments through public finance and public policy?

These normative and positive questions, asked in different circumstances, are the focus of this book. We shall take care to distinguish between normative and positive questions. A clear distinction is required because we do not wish to confuse what governments ideally ought to do with what governments actually do. The two can coincide but need not.

We shall not study any one particular government – federal or central, state or provincial, or local. Descriptions of a particular government's budget and public policies become outdated when the government and the policies change. Today's government budget is not necessarily tomorrow's, nor are today's public policies necessarily the policies that will be appropriate or in place in the future. Studying the details of a particular government's budget and public policies, therefore, does not provide useful, long-lasting knowledge. Lasting knowledge requires identification of general principles that remain applicable anywhere at any time.

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Type
Chapter
Information
Public Finance and Public Policy
Responsibilities and Limitations of Government
 , pp. 1 - 70
Publisher: Cambridge University Press
Print publication year: 2009

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References

Friedman, M., 1953. The methodology of positive economics. In Essays in Positive Economics. University of Chicago Press, Chicago. Reprinted in Hausman, D. M. (Ed.), 1994. The Philosophy of Economics. Cambridge University Press, New York, pp. 180–213.Google Scholar
Grampp, W. D., 2000. What did Smith mean by the invisible hand?Journal of Political Economy 108:441–65.CrossRefGoogle Scholar
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Reisman, D. A., 1975. Adam Smith's Sociological Economics. Croon Helm, London; Barnes & Noble, New York.Google Scholar
Smith, A., 1759/1976. The Theory of Moral Sentiments. Oxford University Press, Oxford.CrossRefGoogle Scholar
Smith, A., 1776/1937. An Enquiry into the Nature and Causes of the Wealth of Nations. Cannan, E. (Ed.), Modern Library Edition. Random House, New York.Google Scholar
Jevons, W. S., 1871/1957. The Theory of Political Economy (5th edition). Kelley and Millman, New York.Google Scholar
Dupuit, J., 1844/1969. On the measurement of the utility of public works. In Arrow, K. J. and Scitovsky, T. (Eds.), Readings in Welfare Economics. Irwin, Homewood IL, pp. 255–83.Google Scholar
Houghton, R. W., 1958. A note on the early history of consumer surplus. Economica 25:49–57.CrossRefGoogle Scholar
Mishan, E. J. and Quah, E., 2007. Cost-Benefit Analysis. Routledge, Abington U.K., and New York.Google Scholar
Willig, R. D., 1976. Consumer's surplus without apology. American Economic Review 66:589–97.Google Scholar
Harberger, A. C., 1954. Monopoly and resource allocation. American Economic Review 44:77–87.Google Scholar
Demsetz, H., 1982. Barriers to entry. American Economic Review 72:47–57.Google Scholar
Hicks, J. R., 1939. The foundations of welfare economics. Economic Journal 49:696–712.CrossRefGoogle Scholar
Kaldor, N., 1939. Welfare propositions of economics and interpersonal comparisons of utility. Economic Journal 49:549–52.CrossRefGoogle Scholar
Kemp, M. C. and Pezanis-Christou, P., 1999. Pareto's compensation principle. Social Choice and Welfare 16:441–4.CrossRefGoogle Scholar
Pareto, V., 1894. Il massimo di utilità dato dalla libera concorrenza. Giornale degli Economisti 9:48–66.Google Scholar
Mill, J. S., 1848/1909. Principles of Political Economy (7th edition). Ashley, W. J. (Ed.). Longmans, Green, and Co., London.Google Scholar
Frey, B. S. and Pommerehne, W. W., 1993. On the fairness of pricing: An empirical survey among the general population. Journal of Economic Behavior and Organization 20:295–307.CrossRefGoogle Scholar
Kahneman, D., J. Knetsch, L., and Thaler, R., 1986. Fairness as a constraint on profit seeking. American Economic Review 76:728–41.Google Scholar
Kirchgässner, G., 2005. (Why) are economists different?European Journal of Political Economy 21:543–62.CrossRefGoogle Scholar
Konrad, K. A., 2004. Altruism and envy in contests: An evolutionarily stable symbiosis. Social Choice and Welfare 22:479–90.CrossRefGoogle Scholar
Mui, V.-L., 1995. The economics of envy. Journal of Economic Behavior and Organization 26:311–36.CrossRefGoogle Scholar
Brennan, G. and Buchanan, J. M., 1984. Voter choice: Evaluating political alternatives. American Behavioral Scientist 28:185–201.CrossRefGoogle Scholar
Brennan, G. and Hamlin, A., 2000. Democratic Devices and Desires. Cambridge University Press, Cambridge U.K.CrossRefGoogle Scholar
Glazer, A., 2008. Voting to anger and to please others. Public Choice 134:247–54.CrossRefGoogle Scholar
Buchanan, J. M., 1954. Individual choice in voting and the market. Journal of Political Economy 62:334–43.CrossRefGoogle Scholar
Soto, H., 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books, New York.Google Scholar
Demsetz, H., 1967. Toward a theory of property rights. American Economic Review 57:347–59.Google Scholar
Frey, B. S. and Buhofer, H., 1988. Prisoners and property rights. Journal of Law and Economics 31:19–46.CrossRefGoogle Scholar
Cournot, A., 1838. Recherches sur les principes mathematiques de la theorie des richesses. English edition: Bacon, N. (Ed.), 1897. Researches into the Mathematical Principles of the Theory of Wealth. Macmillan, London.Google Scholar
Nash, J. F., 1951. Non-cooperative games. Annals of Mathematics 54:286–95.CrossRefGoogle Scholar
Selten, R., 1975. Re-examination of the perfectness concept for equilibrium points in extensive games. International Journal of Game Theory 4:25–55.CrossRefGoogle Scholar
Dixit, A. K., 2004. Lawlessness and Economics: Alternative Modes of Governance. Princeton University Press, Princeton NJ.Google Scholar
Hillman, A. L., 2004. Nietzschean development failures. Public Choice 119:263–80.CrossRefGoogle Scholar
Moselle, B. and Polak, B., 2001. A model of a predatory state. Journal of Law, Economics, and Organization 17:1–33.CrossRefGoogle Scholar
Nietzsche, F., 1886/1997. Beyond Good and Evil: Prelude to a Philosophy of the Future. Dover Publications, New York.Google Scholar
Olson, M., 2000. Power and Prosperity. Basic Books, New York.Google Scholar
Feld, L. and Voigt, S., 2003. Economic growth and judicial independence: Cross-country evidence using a new set of indicators. European Journal of Political Economy 19:497–527.CrossRefGoogle Scholar
Hillman, A. L., 1989. The Political Economy of Protection. Harwood Academic Publishers, Chur, Switzerland. Reprinted 2001, Routledge, Abington U.K., and New York.Google Scholar
Kemp, M. C., 1962. The gains from international trade. Economic Journal 72:803–19.CrossRefGoogle Scholar
Ricardo, D., 1817. Principles of Political Economy and Taxation. Reprinted as volume I in Straffa, P. (Ed.), 1951. The Works and Correspondence of David Ricardo. Cambridge University Press, Cambridge U.K.Google Scholar
Samuelson, P. A., 1939. The gains from international trade. Canadian Journal of Economics and Political Science 5:195–205.CrossRefGoogle Scholar
Marshall, A., 1938. The Principles of Economics (8th edition). Macmillan, London.Google Scholar
Samuelson, P. A., 1947. Foundations of Economic Analysis. Harvard University Press, Cambridge MA.Google Scholar
Walras, L., 1877, 1889, 1896. Elements d'economie politique pure, ou Theorie de la richesse sociale. Corbaz, Lausanne (1877, second edition); Rouge, Lausanne (1889 and 1896, third and fourth editions). In English, 1954. Theory of Pure Economics. Translated by Jaffe, W.. Allen and Unwin, London.Google Scholar
Tullock, G., 1975. The transitional gains trap. Bell Journal of Economics 6:671–78. Reprinted in Buchanan, J. M., Tollison, R., and Tullock, G. (Eds.), 1980. Toward a Theory of the Rent-Seeking Society. Texas A&M University Press, College Station, pp. 211–21.CrossRefGoogle Scholar
Friedman, M., 1953. The methodology of positive economics. In Essays in Positive Economics. University of Chicago Press, Chicago. Reprinted in Hausman, D. M. (Ed.), 1994. The Philosophy of Economics. Cambridge University Press, New York, pp. 180–213.Google Scholar
Grampp, W. D., 2000. What did Smith mean by the invisible hand?Journal of Political Economy 108:441–65.CrossRefGoogle Scholar
Evensky, J., 2005. Adam Smith's Moral Philosophy: A Historical and Contemporary Perspective on Markets, Law, Ethics and Culture. Cambridge University Press, New York.CrossRefGoogle Scholar
Reisman, D. A., 1975. Adam Smith's Sociological Economics. Croon Helm, London; Barnes & Noble, New York.Google Scholar
Smith, A., 1759/1976. The Theory of Moral Sentiments. Oxford University Press, Oxford.CrossRefGoogle Scholar
Smith, A., 1776/1937. An Enquiry into the Nature and Causes of the Wealth of Nations. Cannan, E. (Ed.), Modern Library Edition. Random House, New York.Google Scholar
Jevons, W. S., 1871/1957. The Theory of Political Economy (5th edition). Kelley and Millman, New York.Google Scholar
Dupuit, J., 1844/1969. On the measurement of the utility of public works. In Arrow, K. J. and Scitovsky, T. (Eds.), Readings in Welfare Economics. Irwin, Homewood IL, pp. 255–83.Google Scholar
Houghton, R. W., 1958. A note on the early history of consumer surplus. Economica 25:49–57.CrossRefGoogle Scholar
Mishan, E. J. and Quah, E., 2007. Cost-Benefit Analysis. Routledge, Abington U.K., and New York.Google Scholar
Willig, R. D., 1976. Consumer's surplus without apology. American Economic Review 66:589–97.Google Scholar
Harberger, A. C., 1954. Monopoly and resource allocation. American Economic Review 44:77–87.Google Scholar
Demsetz, H., 1982. Barriers to entry. American Economic Review 72:47–57.Google Scholar
Hicks, J. R., 1939. The foundations of welfare economics. Economic Journal 49:696–712.CrossRefGoogle Scholar
Kaldor, N., 1939. Welfare propositions of economics and interpersonal comparisons of utility. Economic Journal 49:549–52.CrossRefGoogle Scholar
Kemp, M. C. and Pezanis-Christou, P., 1999. Pareto's compensation principle. Social Choice and Welfare 16:441–4.CrossRefGoogle Scholar
Pareto, V., 1894. Il massimo di utilità dato dalla libera concorrenza. Giornale degli Economisti 9:48–66.Google Scholar
Mill, J. S., 1848/1909. Principles of Political Economy (7th edition). Ashley, W. J. (Ed.). Longmans, Green, and Co., London.Google Scholar
Frey, B. S. and Pommerehne, W. W., 1993. On the fairness of pricing: An empirical survey among the general population. Journal of Economic Behavior and Organization 20:295–307.CrossRefGoogle Scholar
Kahneman, D., J. Knetsch, L., and Thaler, R., 1986. Fairness as a constraint on profit seeking. American Economic Review 76:728–41.Google Scholar
Kirchgässner, G., 2005. (Why) are economists different?European Journal of Political Economy 21:543–62.CrossRefGoogle Scholar
Konrad, K. A., 2004. Altruism and envy in contests: An evolutionarily stable symbiosis. Social Choice and Welfare 22:479–90.CrossRefGoogle Scholar
Mui, V.-L., 1995. The economics of envy. Journal of Economic Behavior and Organization 26:311–36.CrossRefGoogle Scholar
Brennan, G. and Buchanan, J. M., 1984. Voter choice: Evaluating political alternatives. American Behavioral Scientist 28:185–201.CrossRefGoogle Scholar
Brennan, G. and Hamlin, A., 2000. Democratic Devices and Desires. Cambridge University Press, Cambridge U.K.CrossRefGoogle Scholar
Glazer, A., 2008. Voting to anger and to please others. Public Choice 134:247–54.CrossRefGoogle Scholar
Buchanan, J. M., 1954. Individual choice in voting and the market. Journal of Political Economy 62:334–43.CrossRefGoogle Scholar
Soto, H., 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books, New York.Google Scholar
Demsetz, H., 1967. Toward a theory of property rights. American Economic Review 57:347–59.Google Scholar
Frey, B. S. and Buhofer, H., 1988. Prisoners and property rights. Journal of Law and Economics 31:19–46.CrossRefGoogle Scholar
Cournot, A., 1838. Recherches sur les principes mathematiques de la theorie des richesses. English edition: Bacon, N. (Ed.), 1897. Researches into the Mathematical Principles of the Theory of Wealth. Macmillan, London.Google Scholar
Nash, J. F., 1951. Non-cooperative games. Annals of Mathematics 54:286–95.CrossRefGoogle Scholar
Selten, R., 1975. Re-examination of the perfectness concept for equilibrium points in extensive games. International Journal of Game Theory 4:25–55.CrossRefGoogle Scholar
Dixit, A. K., 2004. Lawlessness and Economics: Alternative Modes of Governance. Princeton University Press, Princeton NJ.Google Scholar
Hillman, A. L., 2004. Nietzschean development failures. Public Choice 119:263–80.CrossRefGoogle Scholar
Moselle, B. and Polak, B., 2001. A model of a predatory state. Journal of Law, Economics, and Organization 17:1–33.CrossRefGoogle Scholar
Nietzsche, F., 1886/1997. Beyond Good and Evil: Prelude to a Philosophy of the Future. Dover Publications, New York.Google Scholar
Olson, M., 2000. Power and Prosperity. Basic Books, New York.Google Scholar
Feld, L. and Voigt, S., 2003. Economic growth and judicial independence: Cross-country evidence using a new set of indicators. European Journal of Political Economy 19:497–527.CrossRefGoogle Scholar
Hillman, A. L., 1989. The Political Economy of Protection. Harwood Academic Publishers, Chur, Switzerland. Reprinted 2001, Routledge, Abington U.K., and New York.Google Scholar
Kemp, M. C., 1962. The gains from international trade. Economic Journal 72:803–19.CrossRefGoogle Scholar
Ricardo, D., 1817. Principles of Political Economy and Taxation. Reprinted as volume I in Straffa, P. (Ed.), 1951. The Works and Correspondence of David Ricardo. Cambridge University Press, Cambridge U.K.Google Scholar
Samuelson, P. A., 1939. The gains from international trade. Canadian Journal of Economics and Political Science 5:195–205.CrossRefGoogle Scholar
Marshall, A., 1938. The Principles of Economics (8th edition). Macmillan, London.Google Scholar
Samuelson, P. A., 1947. Foundations of Economic Analysis. Harvard University Press, Cambridge MA.Google Scholar
Walras, L., 1877, 1889, 1896. Elements d'economie politique pure, ou Theorie de la richesse sociale. Corbaz, Lausanne (1877, second edition); Rouge, Lausanne (1889 and 1896, third and fourth editions). In English, 1954. Theory of Pure Economics. Translated by Jaffe, W.. Allen and Unwin, London.Google Scholar
Tullock, G., 1975. The transitional gains trap. Bell Journal of Economics 6:671–78. Reprinted in Buchanan, J. M., Tollison, R., and Tullock, G. (Eds.), 1980. Toward a Theory of the Rent-Seeking Society. Texas A&M University Press, College Station, pp. 211–21.CrossRefGoogle Scholar

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  • MARKETS AND GOVERNMENTS
  • Arye L. Hillman, Bar-Ilan University, Israel
  • Book: Public Finance and Public Policy
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9780511813788.002
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Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

  • MARKETS AND GOVERNMENTS
  • Arye L. Hillman, Bar-Ilan University, Israel
  • Book: Public Finance and Public Policy
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9780511813788.002
Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • MARKETS AND GOVERNMENTS
  • Arye L. Hillman, Bar-Ilan University, Israel
  • Book: Public Finance and Public Policy
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9780511813788.002
Available formats
×