The origin of money reconsidered: Explanatory progress?

Broadly, we may test a model (verbal or analytical) in two ways: by asking wheth- er it is logically sound and by confronting it with the real world. The above mod- els ask whether Menger’s (or the classical) intuition about the origin of money is logically sound. They accomplish this in different ways: by

Partial potential explanations of models

The philosophical literature on scientific explanation makes distinctions between (a) singular and theoretical explanation, and (b) complete and incomplete expla- nation. Singular explanations are explanations of singular facts or events (such as the fact that different ethnic groups are living in different parts of the city in Rotterdam).2 A singular explanation is expected to

Models and explanations

In previous chapters, we have discussed two alternative (but complementary) in- terpretations of the invisible hand: the process interpretation and the end-state interpretation. Explanations that subscribe to the process interpretation of the in- visible hand may be considered as causal explanations for they focus on the mech- anisms that may bring about certain unintended

Models and representation

Models have many uses in everyday life, in science and in philosophy of science. Models might be material, visual, formal or representational, theoretical, or im- aginary. Mäki (2001a) argues that there is one thing common to all these different types of models: ‘they represent something beyond themselves’.13 In this sense, we may consider the

Models and theories

There are two prominent philosophical accounts of theories: the syntactic view and the semantic view. The syntactic view rests on an assumption of well-es- tablished theories that can be presented as axiomatic systems, and emphasises the linguistic and logical structure of theories. The syntactic view does not pay attention to the role of (partial)

Models, similarity and tendencies

In contrast to van Fraassen’s interpretation, Suppe and Giere’s versions of the se- mantic view suggest that models and theories represent (or have a chance to repre- sent) the way the world works, or the connecting principles of nature and society (see Chapter 5). But we have seen that if we conceive their general

Models and exploration

It is a fact of economics that models are explored. A quick look at any survey ar- ticle on a certain topic would reveal this fact. Generally, an influential model built on observations about the phenomenon under consideration, on knowledge of other areas of research and on knowledge available tools suggests something new. Other

Models as mediators

Finally, let us consider the implications of ‘exploration’ for our view of the rela- tion between models and theories. The semantic view helps us see one important fact about models: a collection of models of the same phenomenon (e.g. emer- gence of money) can be considered as supplying the resources for explaining sin- gular

Coordination conventions

Let us say that we want to explain the emergence of the ‘rules of the road’ and to show how such a convention could emerge merely from the interactions of indi- viduals who do not intend to bring it about. As we want to explain the emergence of the convention, we should start from

Coordination in the world of models

The driving game presented in Table 8.1 is a one-shot game. It may be considered as a representation of the state of affairs when two individuals face the aforemen- tioned coordination problem for the first time. Moreover, it serves as a representa- tion of the possible outcomes they may reach after making their choices.

Game theory and conventions: Focal points

Schelling’s (1960) focal point argument and Lewis’s concept of salience has been interpreted by game theorists in different ways. Game theorists have tried to in- tegrate the idea that individuals may be successful in coordination games if a certain strategy stands out as an obvious option into the formal structure of the game. Two

Smith, Jevons and Mises on money

1. Smith on money A similar story of the origin of money to that of Menger’s can be found in Adam Smith’s The Wealth of Nations. Smith builds the story of money on his ideas about the emergence of the division of labour: This division of labour, from which so many advantages are derived,

Models of emergence of money

1. Kiyotaki and Wright (1989) The expected discounted lifetime utility is defined as: where Ui  is the utility from consuming good i, Di*  is the disutility from producing good i* (i* ¹ # 1), and β is the discount factor. cij  denotes the cost of storing good j for type i. is equal to one

Explorations of the chequerboard world

It may be argued at the outset that if a model’s conjecture is interesting and prom- ising enough it will be subjected to many tests and explored in different ways. The chequerboard model is a good example in this respect. First of all, the cheq- uerboard model is widely cited in sociological and geographical

Focal points and risk dominance

This appendix introduces some of the concepts mentioned in Chapter 8 and presents some of the related issues for the convenience of the reader who is not much acquainted with game theory. 1. Salience and precedence Let us, for a moment, dispense with the assumptions concerning the driving game of Table 8.1 and think