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HONORS ECONOMICS MAMMON & MORALITY

HONORS ECONOMICS MAMMON & MORALITY. ECONOMICS’ TWO GREAT INSIGHTS. 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 Failure

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HONORS ECONOMICS MAMMON & MORALITY

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  1. HONORS ECONOMICS MAMMON & MORALITY

  2. ECONOMICS’ TWO GREAT INSIGHTS 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 Failure • A.K.A. “The Macroeconomic Principle” • “The Progressive Principle” 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”

  3. POLITICO-ECONOMIC SYSTEMS

  4. RELIGION & PHILOSOPHY • 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 Primitive Religion: Good Behavior = Good Harvest Rain-dance Animal Sacrifices (“scapegoats”) Story of Jonah Taboo Examples of Principle 1: Karma Mandate of Heaven Punishment for Sins “Ant & the Grasshopper” The “Golden Rule” Good Behavior (VIRTUE) will be rewarded (HAPPINESS) “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

  5. THE STORY OF JOB DESERVE’S GOT NOTHING TO DOT WITH IT Job must have done really wrong to deserve this. Think Job, you must have done something wrong. Bad things can’t happen to good people. With friends like these. . . Who needs enemies

  6. ADAM SMITH’S GREAT IDEA DIVISION OF LABOR SPECIALIZATION& 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 FREE LABOR • “LABOR THEORY OF VALUE” – The value of a good or service = labor required to produce it • Labor, the source of economic value, = “free” to be guided by the “invisible hand” & not bound to land or bond. In 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) 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 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 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

  7. VIRTUE AS VICE CLASSICAL ECONOMICS = “NO SUCH THING AS A FREE LUNCH” GOVERNMENT INTERVENTION DISTORTS MARKETS SUPPORT LAISSEZ-FAIRE POLICIES MALTHUS = FEEDING THE POOR  MORAL HAZARD  FAMINE & ENVIRONMENTALDEGRADATION UNLIMITED WANTS / LIMITED RESOURCES RICARDO = PROTECTIONISM  MONOPOLY HIGHER PRICES FOR CONSUMERS NATIONS SHOULD PRODUCE ACCORDING TO THEIR COMPARATIVE ADVANTAGE

  8. MARX STRIKES BACK MARX: CLASSICAL ECONOMICS = “STARK UTOPIA” MARX: HISTORY = CLASS CONFLICT OVER THE MEANS OF PRODUCTION KARL MARX ALIENATION – • WORK = NOT MEANINGFUL • COGS IN A MACHINE EXPLOITATION – • CONFLICT, NOT HARMONY • CAPITAL EXTRACTS LABOR’S “SURPLUS VALUE” • EXCHANGEvs. USEVALUE WAGE SLAVERY – • LIVE  WORK WORK  LIVE • CAPITALISM = INHUMANE • ADAM SMITH • DIVISION OF LABOR  • “THE INVISBLE HAND”  • FREE LABOR 

  9. RELIGION & MORAL ECONOMY Something funny happened on the way to the Rapture . . . CALVINISM– Puritans & Pilgrims – (Weber Thesis) wealth revealed divine PREDESTINATION • Literate population  DIVISION OF LABOR • Bible churches required literacy among the laity • Work is to pray; pray is to work  Capitalist WORK ETHIC (Work as Vocation) • “LaborareestOrare” • 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 clock • Clock Towers replace Bell Towers and Minarets* Most 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 . . .

  10. LAISSEZ-FAIRE & 19th CENTURY POLITICS 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) LAISSEZ-FAIRE ≈ SOCIAL DARWINISM • SURVIVAL OF THE FITTEST • MARKET = NATURAL SELECTION • COMPETITION = NATURAL LAISSEZ-FAIRE = PROGRESSIVE REFORMERS = LIBERALS LAISSEZ-FAIRE LINKED TO VICTORIAN MORALITY POPULAR DEMOCRACY (USA) SOCIAL DEMOCRACY (UK + SWEDEN) FASCISM (GERMANY + JAPAN) English Nobility Junkers Populist Coalition NY Finance & Robber Barons Ruhr Industrialists Manchester Industrialists Chartists

  11. KEYNESIAN REVOLUTIONS • VICTORIANS: ECONOMIC DOWNTURNS = “COLD DOUCHES” THAT “PURGED THE ROTTENESS” AFTER THE “IRRATIONAL EXUBERANCE” & GREED OF THE BOOM YEARS • NO PAIN, NO GAIN • The “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

  12. MARX WAS RIGHT (SORT OF) CRITICS: MARX = DISCREDITED • PREDICTED “INEVITABLE” SOCIALIST REVOLUTION • FAILURE OF “MARXIST-LENINIST” REGIMES IN RUSSIA & EASTERN EUROPE • LIBERALIZATIONOF 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

  13. POLITICO-ECONOMIC SYSTEMS

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