HONORS ECONOMICSMAMMON & MORALITY

ECONOMICS’ TWO GREAT INSIGHTS

VIRTUE ≠ HAPPINESS

“No such thing as a free lunch”Economic problem = UNLIMITED

desires & LIMITED resources Necessity of Choices & Tradeoffs

A.K.A. “The Microeconomic Principle” “The Conservative Principle”

WHOLE ≠ SUM OF THE PARTS > < ⊗

“Smart for one, dumb for all”or

“Dumb for one, smart for all” EXTERNALITIES & Public Goods

Ex. LoJack v. The Club

Pervasive Market & Gov’t FailureA.K.A. “The Macroeconomic Principle” “The Progressive Principle”

POLITICO-ECONOMIC SYSTEMS

EQUILIBRIUM

POWER-EFFICIENCY

GLUT EQUILIBRIUM

EFFICIENCY

John Maynard KeynesThomas Malthus

David RicardoJ.B. Say

POWER

Karl MarxJoseph Schumpeter

Thorstein Veblen

Friedrich Von HayekAustrian Economics

Libertarians

RELIGION & PHILOSOPHYPrimitive Religion:

Good Behavior = Good HarvestRain-dance Animal Sacrifices (“scapegoats”) Story of JonahTaboo

Examples of Principle 1:KarmaMandate of HeavenPunishment for Sins“Ant & the Grasshopper”The “Golden Rule”

Good Behavior (VIRTUE) will be rewarded (HAPPINESS)

Ancient Philosophy: (Plato & Aristotle) VIRTUE = HAPPINESS & HAPPINESS = VIRTUE

ONLY DOING GOOD CAN MAKE YOU TRULY HAPPY WEALTH = REWARD FOR GOOD BEHAVIOR

PUBLIC GOOD = PRIVATE GOOD HUMANS = SOCIAL ANIMALS ( ZOON POLITIKON ) GOOD GOVERNMENT GOOD CITIZENS (RES PUBLICA)

Modern Philosophy: MACHIAVELLI: “THE END JUSTIFIES THE MEANS”

VIRTUE (MEANS) ≠ HAPPINESS (ENDS) MANDEVILLE: “THE FABLE OF THE BEES”

PRIVATE VICE PUBLIC VIRTUE (GREED IS GOOD) SOCIAL CONTRACT THEORIES:

INTERESTS OF RULERS ≠ INTERESTS OF RULED

“Justice in the life and conduct of the State is possible only as first it resides in the hearts and souls of the citizens.”

Plato

“Happiness is the meaning and the purpose of life, the whole aim and end of human existence.”

Aristotle

THE STORY OF JOB

Job must have done really wrong to deserve

this.

DESERVE’S GOT NOTHING TO DOT

WITH IT

Think Job, you must have done something

wrong. Bad things can’t happen to good people. With friends like these. . .

Who needs enemies

ADAM SMITH’S GREAT IDEAIn 1776, ADAM SMITH wrote

THE WEALTH OF NATIONS

= attacked MERCANTILISM & established the intellectual basis for modern CAPITALISM

Three Ideas:

Division of Labor (Industrial Model of Production)

The “Invisible Hand” (Market System of Distribution)

Labor Theory of Value (Legal Property Rights)

DIVISION OF LABORSPECIALIZATION & dividing production into individual

tasks would increase productivity

THE “INVISIBLE HAND”People pursue their rational SELF-INTEREST & guided by

the PRICE SYSTEM’s “Invisible Hand” serve the public interest

The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labor.

ADAM SMITH

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest . . . they intend only their own gain, and they are in this, as in many other cases, led by an invisible hand to promote an end which was no part of their intention. Nor is it always the worse for the society that it was no part of it. By pursuing their own interest they frequently promote that of the society more effectually than when they really intend to promote it.

ADAM SMITH

FREE LABOR“LABOR THEORY OF VALUE” – The value of a good or

service = labor required to produce itLabor, the source of economic value, = “free” to be

guided by the “invisible hand” & not bound to land or bond.

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people.

ADAM SMITH

VIRTUE AS VICERICARDO = PROTECTIONISM MONOPOLY HIGHER

PRICES FOR CONSUMERS

NATIONS SHOULD PRODUCE ACCORDING TO THEIR COMPARATIVE ADVANTAGE

CLASSICAL ECONOMICS = “NO SUCH THING AS A FREE LUNCH”GOVERNMENT INTERVENTION DISTORTS MARKETS

SUPPORT LAISSEZ-FAIRE POLICIES

MALTHUS = FEEDING THE POOR MORAL HAZARD FAMINE & ENVIRONMENTAL DEGRADATION

UNLIMITED WANTS / LIMITED RESOURCES

MARX STRIKES BACK

KARL MARXALIENATION –

WORK = NOT MEANINGFUL COGS IN A MACHINE

EXPLOITATION – CONFLICT, NOT HARMONY CAPITAL EXTRACTS LABOR’S

“SURPLUS VALUE” EXCHANGE vs. USE VALUE

WAGE SLAVERY – LIVE WORK WORK LIVE CAPITALISM = INHUMANE

ADAM SMITHDIVISION OF LABOR

“THE INVISBLE HAND”

FREE LABOR

MARX: CLASSICAL ECONOMICS = “STARK UTOPIA” MARX: HISTORY = CLASS CONFLICT OVER THE MEANS OF

PRODUCTION

RELIGION & MORAL ECONOMYMost religions preach COMMUNISM

– Moral Economy – in theory if not in practice

– Restrictions on usury ()– Year of jubilee ()– Zakat / noblesse oblige ()– Fair price– Indifference to material wealth– Merchants = low social status ()

“It is easier for a camel to pass through the eye of a needle, than for a rich man to enter into the kingdom of heaven.”

“Blessed are the poor, theirs is the Kingdom of God.”

“Hearken to this, you who swallow up the needy and cut off the poor of the land. You who purchase the poor with money and the needy in order to inherit them and the refuse of the grain we will sell. The Lord swore . . . I will never forget any of their deeds. Shall not the land quake and its inhabitants be destroyed? Yea, it shall rise up wholly like the rain cloud and it shall sink link the river of Egypt.”

On the 8th day, God did not create capitalism . . .

Something funny happened on the way to the Rapture . . .

CALVINISM – Puritans & Pilgrims – (Weber Thesis)wealth revealed divine PREDESTINATION

Literate population DIVISION OF LABORBible churches required literacy among the laity

Work is to pray; pray is to work Capitalist WORK ETHIC (Work as Vocation)

“Laborare est Orare” Invest rather than spend wealth CAPITAL ACCUMULATION

Make money, but not spend Savings & Investment

Rational CALCULATION: Idle Hands Devil’s Work Time is Money

Protestants = Invention of the mechanical clockClock Towers replace Bell Towers and Minarets*

LAISSEZ-FAIRE & 19th CENTURY POLITICS

Junkers

Ruhr Industrialists

Populist Coalition

NY Finance &

Robber Barons

English Nobility

ChartistsManchester Industrialists

SOCIAL DEMOCRACY(UK + SWEDEN)

POPULAR DEMOCRACY(USA)

FASCISM(GERMANY + JAPAN)

LAISSEZ-FAIRE ≈ SOCIAL DARWINISM SURVIVAL OF THE FITTEST MARKET = NATURAL SELECTION COMPETITION = NATURAL

LAISSEZ-FAIRE = PROGRESSIVE REFORMERS = LIBERALSLAISSEZ-FAIRE LINKED TO VICTORIAN MORALITY

ENGLISH LANDOWNERS (NOBLES) KEPT OUT IMPORTED GRAIN HIGH FOOD COSTS FOR URBAN WORKERS HIGH LABOR COSTS FOR CAPITALISTS

(CAPITAL & LABOR vs. LAND)

AMERICAN “ROBBER BARONS” CREATED MONOPOLIES OVER STEEL, OIL & TRANSPORTATION LOW AGRICULTURAL PRICES & INDUSTRIAL WAGE

(LABOR & LAND vs. CAPITAL)

GERMAN TRADE UNIONS HIGHER WAGES & WELFARE LOWER RETURN ON INVESTMENT & LOWER LAND RENTS

(LAND & CAPITAL vs. LABOR)

KEYNESIAN REVOLUTIONSVICTORIANS: ECONOMIC DOWNTURNS = “COLD DOUCHES”

THAT “PURGED THE ROTTENESS” AFTER THE “IRRATIONAL EXUBERANCE” & GREED OF THE BOOM YEARS

NO PAIN, NO GAINThe “Pain Caucus” (Remember Job?)

Along comes the Great Depression . . .

KEYNES rejected Victorian morality: PUNISHMENT did not imply a SIN or a sinner

“Balance sheet” thinking reducing spending when incomes shrink PARADOX OF THRIFT

Governments should SPEND MORE – not less – when incomes & revenues decrease

MARX WAS RIGHT (SORT OF)CRITICS: MARX = DISCREDITED

PREDICTED “INEVITABLE” SOCIALIST REVOLUTION

FAILURE OF “MARXIST-LENINIST” REGIMES IN RUSSIA & EASTERN EUROPE

LIBERALIZATION OF STATIST IMPORT-SUBSTITUTION ECONOMIES IN INDIA & LATIN AMERICA

PUBLIC SECTOR SPENDING = INCREASED IN ALL DEVELOPED COUNTRIES IN THE 20TH CENTURY 30% TO 60% OF GDP

MARX: CAPITALISM HIGHER UNCERTAINTY & INSTABILITY SOCIALIZATION OF RISK & REWARD

SOCIALIZED EDUCATION (PUBLIC EDUCATION)SOCIALIZED HEALTH INSURANCE SOCIALIZED RETIREMENT (SOCIAL SECURITY & 401(k))SOCIALIZED BANKING (FEDERAL RESERVE & FDIC)

MARX CORRECTLY IDENTIFIED THE IMPACT OF GLOBALIZATION, MATERIALISM (“FETISH” COMMODITIES), & GROWTH OF EXECUTIVE POWER / BUREAUCRACY

POLITICO-ECONOMIC SYSTEMS

STATE – MARKET

MEANS – ENDS

MARKET PLAN

RATIONAL

LIBERAL MARKET ECONOMIES

(USA, CANADA + UK)

COORDINATED MARKET ECONOMIES

(EUROPE + JAPAN)

IDEOLOGICAL

LAISSEZ-FAIRE

(DICKENSIAN ENGLAND /

GILDED AGE USA)

STATE SOCIALISM

(USSR + EASTERN EUROPE)