Market order and social norms. Hayek’s theory of social evolution
Hayek’s theory of socio-cultural evolution is a generalization of his theory of market order. He explains in the same way the development and operation of market order and those of the social institutions on which market order is based. This logic interprets the development and persistence of spontaneous order and group-level behaviour rules as an unintentional consequence of individual actions. In his explanation of social norms, enforcement of the principles of methodological individualism has to be paid for by abandoning the evolutionist perspective. But Hayek also employs an evolutionist approach in his explanation of social norms, and so he augments his methodological individualist approach with some functionalist-cum-evolutionist arguments. Hayek’s theory of sociocultural evolution, for instance, exemplifies how an explanation resting on methodological individualism and a functionalist argument can complement, not preclude each other.
Government investment in a small open economy
The article examines the effect of government investment on a small open economy. It explores government capital expenditures on the kind of infrastructural developments that not only increase the country’s output directly, but provide positive externals for private-sector production. The authors examine what long and short-term effects ambitious state developments have, depending on the outside transfers and the credit sources available. It is concluded that although the model in its present, strongly stylized form is only a numerical example (so that the numerical conclusions to be drawn from it are very limited in validity), the lessons presented here are interesting and may contribute new criteria to the lively Hungarian debates on the likely effects of state development spending and Union transfers.
How do firms develop? The mutual evolutionary process of physical and social technology
The aim of this paper is to contribute to a better understanding of the firm through an explanation of its evolution, as part of the co-evolution of social and physical technologies. The author argues that since the emergence of the capitalist firm (factory) in the British Industrial Revolution, this co-evolutionary process has brought about two major mutant-firms, namely the M-form which emerged from the beginning of the Second Industrial Revolution and the decentralized-disintegrated organization (project-based firm) born in the New Economy. The author analyses the rise of the succeeding mutant-firms in the co-evolutionary process framework and also highlights the nature of the differences between them.
Examination of loan-loss allowance practices by Hungarian banks
The question of the loan-loss allowance practices of Hungarian banks has received little attention in Hungarian literature. Yet according to international experience, loan-loss allowances, due to their magnitude, not only play a dominant part in the financial position of banks, but can even amplify the cyclicality of the economy. Hungarian loan-loss allowances are pro-cyclical. They move closely together with economic fluctuation, which poses a potential source of risk to financial and macroeconomic stability due to the existence of capital requirements. Real evidence is found of income-smoothing through loan-loss allowances. Capital management is realized by using general provisioning, which means a more favourable approach to financial stability. Loan-loss allowances are closely linked to risk-taking by banks. Banks prudently raise their loan-loss allowances almost simultaneously with an increase in credit expansion. However, it is found that the provisioning is strongly seasonal and based on the provisioning banks’ estimation of expected losses, so that it is hardly accurate. These practices do not seem to be prudent.