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THE WORLDL PHILOSOPHER
Not including • • • • •
Life and Background of the Author A Brief Synopsis Critical Commentaries Essay Topics and Review Questions Selected Bibliography
by Mary Ellen Snodgrass, M.A. Appalachian State University
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THE WORLDL PHILOSOPHER
Not including • • • • •
Life and Background of the Author A Brief Synopsis Critical Commentaries Essay Topics and Review Questions Selected Bibliography
by Mary Ellen Snodgrass, M.A. Appalachian State University
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LIFE AND BACKGROUND OF THE AUTHOR
A summa cum laude, Phi Beta Kappa graduate from Harvard, Robert Louis Heilbroner (born 1919) is influential economist and prolific writer, reviewer, consultant, and lecturer. Raised in luxury and educ at private schools, he claims to have patterned his liberal economic views after the family chauffeur, w served as a father figure after the author's father died in 1924.
Heilbroner was assigned to the Intelligence Service during World War II, interrogating Japanese priso of war. He rose to the rank of first lieutenant and earned the Bronze Star. Following the war he obtain his doctorate from the New School for Social Research in New York City, where he served as the Norman Thomas Professor of Economics beginning in 1972.
As a practicing economist, Heilbroner has lectured before business, university, and labor groups. Am his awards and honors are the Guggenheim fellowship (1983); membership in the executive committe the American Economic Association, Council on Foreign Relations, and the Century Association; and honorary degrees from La Salle College, Ripon College, Long Island University, and Wagner College Outside his profession he cultivates an interest in Oriental art, the eighteenth century, bird watching, a piano.
Heilbroner achieved immediate recognition as a writer and economist with his first book, The World Philosophers. Published in 1953, it was revised many times. The most recent revision reflects Heilbroner's evolving views and contains backnotes as well as alterations to the final chapters, which with the modern economists. The book has been printed in over twenty foreign editions and is respec and utilized in American colleges and universities as a standard introductory text.
In 1956, Heilbroner published The Quest for Wealth, which describes the origin and nature of the hum drive for acquisition and its role in today's money-directed society. The Future as History followed i 1960, a work attempting to predict future trends in U.S. and world economics. In this book, the autho questions American optimism concerning conflicting world ideologies. Not entirely pessimistic, he w Americans to assert themselves and halt long-term trends that may prove disastrous.
In 1962, Heilbroner examined the development of economic societies from past to present in The Ma of Economic Society. This overview includes inquiries into slavery, feudalism, the IndustrialRevolut Sign upGreat to voteAscent on this, title The and the market system. The following year, the author published a survey of econo ofUseful Nottouseful development in a hundred emerging nations and the relationship these nations the modern Weste world, particularly the United States. In this work the author favors foreign aid only as a means of promoting trade among nations.
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A BRIEF SYNOPSIS
The Worldly Philosophers is a useful book--not only to college students, but to any person wishing an understanding of economics. Basically the book offers three benefits:
1.
A simpl simplee but but comp compre rehen hensi sive ve exp expla lana natio tion n of the the idea ideass of the the Grea Greatt Econo Economis mists. ts. It give givess the the re an insight into the lives of these economists and the history of economics. Robert L. Heilbron places their concepts in a proper context, thereby explaining how their philosophies evolve al with historical events. Throughout the book, the author weaves into the narrative the freshnes language, wit, and originality which makes for interesting reading. He discusses economic concepts in plain, understandable language.
2.
A valua valuabl blee intro introdu duct ction ion to any any cour course se in in econ economi omics cs.. Stud Studen ents ts wil willl find find a basic basic expla explana nati tion on o capitalism, socialism, communism, prosperity, depression, and the practical workings of an economy. In marked contrast to the dry, technical, and theoretical treatment of economics by most textbooks, The Worldly Philosophers offers a vibrant, practical explanation of the world economics--past, present, and future. A student will find it extremely profitable to study the b along with these notes prior to enrolling in a course or taking an exam in economic principles problems.
3.
An overv overvie iew w of the the poli politi tica cal, l, soc socia ial, l, and and ethi ethica call conc concept eptss of econ econom omic ic thou thought ght.. For For the perso perso pursuing an education on the history of the lives, times, and ideas of the great economic think of the Western world, this book contains a capsulized version of the major tenets.
DEFINITIONS OF SIGNIFICANT TERMS AND CONCEPTS
The following definitions and explanations of significant terms and concepts are arranged in the order which they appear in each chapter.
CHAPTER 1 Worldly Philosophers
Philosophers who concern themselves with economics.
CHAPTER 2
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Consumption
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The process by which goods and services are utilized in satisfying human needs and wants. Production
The process of creating the goods or services to be consumed. Distribution "Physical" 1.
The process of getting goods and services into the hands of consumers. 2.
"Personal"
The division of income among individuals. 3.
"Functional"
The division of income according to different types . . . wages rent, interest, profit. Basic Agents (Factors) of Production
Land, labor, capital, and management 1.
Land
Natural resources. 2.
Labor
Human effort. 3.
Capital
The physical necessities for production--buildings, machinery, tools, equipment, and supplies This term commonly refers to the money used to purchase these necessities. 4.
Management
The planning, coordination, and direction of production. The Economic Revolution
(capital The development of historical factors which culminated in the adoption theon market system Sign up toof vote this title
Factors Responsible for the Economic Revolution
1.
The Renaissance
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4.
The Age of Exploration and Discovery
(l5th-l7th centuries)--an era which provided natural wealth from the colonies in the form of g silver, and other raw resources.
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5.
The Protestant Reformation
(l500-1648)--a time period encouraging enterprise and the investment of capital; a philosoph outgrowth which made interest and profit respectable.
CHAPTER 3 Age of Enlightenment
A period (roughly 1700-89) when political, economic, and social thought was dominated by an optim faith in reason and in the progress of the human race. Mercantilism
The doctrine which dominated European economic policies from 1500 until the advent of laissez faire through a program which stressed that the real wealth of a nation resulted from its stores of gold and silver, which could be acquired by an excess of exports to imports, self-sufficiency of the nation, and exploitation of colonies. Physiocrats
A group of thinkers during the Age of Enlightenment who opposed mercantilism, believing instead th the true source of wealth derives from land and agriculture; they advocated the doctrine of laissez fair
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Francois Quesnay (1694-1774)
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French economist who founded the school of Physiocrats and greatly influenced Adam Smith. Laissez Faire
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Literally, "let [it] function"--the economic doctrine founded by Quesnay and the Physiocrats and expounded by Adam Smith, stressing no governmental interference in the operations of the market economy. Three Historical Stages of Capitalism: Sign up to vote on this title
1.
First Stage
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(1450-1750) "Commercial Capitalism," when profits depended on the transportation of good
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Enclosure Movement
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The practice of fencing off lands formerly subject to common rights in order to provide pasture land f sheep. This movement caused a shift of the poor in England from farms to cities. Patron Saint of Free Enterprise
Adam Smith. Father of Modern Economics
Adam Smith. Classical Economists
The economists who preached the doctrine of laissez faire and stressed that the production, consumpt and distribution of goods and wealth are determined exclusively by economics laws and principles.
CHAPTER 4 Iron Law of Wages
Labor's wages must remain at the subsistence level, or natural price, because of the worker's tendency produce more children. (David Ricardo) Malthusian Doctrine
Thomas Malthus' thesis that population, unless checked, grows at a greater rate than the means of subsistence and will result in starvation.
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Neo-Malthusianism
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A name originally denoting birth control.
CHAPTER 5
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Founder of British Socialism
Robert Owen. Founder of French Socialism
Saint-Simon.
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Utopia
A name which classifies any social, intellectual, or political scheme which is impractical at the time w
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CHAPTER 6 Sheet Music
Hegelian Dialectics
The philosophical concept that in the world of ideas, change occurs as the result of a synthesis, or com together of opposing forces: a given idea (thesis), when challenged by a new and opposing idea (antithesis), results in a new concept (synthesis) which is somewhat closer to the truth than the initial ideas. Dialectical Materialism
Karl Marx's application of Hegel's dialectical method to an explanation of all world events. Historical Materialism
Marx's economic interpretation of history, which stresses economics as the basis for all human action and historical events. Communism
A belief in the achievement of socialism by revolutionary means, particularly by class warfare. Marxism
Communism according to the exact words and predictions of Karl Marx. Scientific Socialism
What Marx and Engels called the ideas contained in The Communist Manifesto and Das Kapital ; You're Reading a Preview scientific laws explaining the economic determination of history, class struggle, and the inevitable downfall of capitalism with the eventual triumph of workers over the moneyed class. Unlock full access with a free trial. Prophet of the Proletariat
Karl Marx.
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Capitalists
The class which provides or controls the money that underwrites the production of goods. Technically capitalists are the upper class of the bourgeoisie, known as the "haute bourgeoisie," or high middle cla the most hated class under Marxism. Sign up to vote on this title
Bourgeoisie
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The middle class. Technically, it includes the "petite bourgeoisie," or small middle class--the small shopkeepers, government officials, lawyers, doctors, independent farmers, and teachers--and the "hau
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CHAPTER 7 Sheet Music
The Victorian Age
The period associated with the reign of Queen Victoria of Great Britain, 1837-1901. Imperialism
The extension of authority, or control, of one nation over another. Economic Imperialism
The economic and/or political domination of underdeveloped countries by powerful nations. The peri between 1870 and 1914 is known as Europe's "Golden Age of Imperialism."
CHAPTER 8 Robber Barons
Unscrupulous titans of U.S. finance and industry, including Jay Gould, Jim Fisk, and Cornelius Vanderbilt. The term was derived from the title of a book by Matthew Josephson. Conspicuous Consumption
The use of material goods to flaunt a person's belonging to a moneyed or privileged class. Technocracy
Government run by technical experts, with money replaced by work units of currency. You're Reading a Preview
CHAPTER 9
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The Great Crash
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The Wall Street Crash of October 1929, when the New York Stock Exchange collapsed after a selling wave in which stock values tumbled in a panic following an all-time high. The Great Depression
Worldwide depression triggered by the Wall Street Crash. The era extended from 1930-39, with the depths reached in 1933. Sign up to vote on this title
The New Deal
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Social and economic reforms carried out by President Franklin D. Roosevelt between 1933 and 1939 combat the Great Depression.
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CHAPTER 10 Sheet Music
Plausible Capitalism
A capitalistic system that perpetually renews itself through growth. Monopoly
Literally, "single seller"; an economic situation in which one firm controls an entire market. Circular Flow
A static system which channels productivity and profits into an endless exchange. Entrepreneur
A risk-taker, or innovator, in the business world.
CHAPTER 11 Behavioral Regularities
Predictable aspects of the marketplace, such as competition and demand. Preanalytic
Creative; predicting change.
You're COMMENTARIES Reading a Preview CRITICAL
FOREWORD
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The Worldly Philosophers is an engaging, readable text. As such, it presents readers with a comprehensive explanation of the development of modern economic philosophy. This guide is design to supplement the book in order to instruct students in unfamiliar basic concepts, such as mercantilism well as in periods of historical development in the social sciences, notably the scientific revolution, Renaissance, commercial revolution, and the Great Depression.
Sign up to vote on this title challenge i The text of this guide offers many insights into the realm of basic economics. A particular useful bridging of gaps as the author leaps from idea to idea. The organization thisNot guide simplifies mater Useful of through chapter summary, commentary on background information, further explanations of relevant points in each chapter, and, finally, an overview and evaluation of the book as a whole. Overall, the g
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Commentary
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Even though these economists are not yet named, they are described by such intriguing characterizati as madman, skeptic, and tramp. Among the identifications, which become apparent in subsequent chapters, are these: a philosopher--Adam Smith a parson--Thomas R. Malthus a stockbroker--David Ricardo a nobleman--Saint-Simon a madman--Charles Fourier a revolutionary--Karl Marx an aesthete--John Maynard Keynes a tramp--Henry George a skeptic--Thorstein Veblen
CHAPTER 2: The Economic Revolution Summary
From the beginning of civilization, human beings have faced the challenge of survival, which depend upon two factors--work and cooperation with others. Since individuals are notably self-centered, the possibility that humans will not remain faithful to work has threatened society's existence. If there are enough miners to work the mines or if most miners should decide to follow another line of work; if farmers should decide to fish instead of plow and reap; or if an insufficient number of students studie You're Reading a Preview medicine or engineering, the economy would break down. In summary, if the interdependence of hum workers should fail at any vital point inUnlock the economy, would suffer. During the early portio full accessthe withworld a free trial. civilized life, only two methods safeguarded against such an outcome--tradition and command.
Tradition
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The passage of tasks, or jobs, from generation to generation through custom--a carpenter's child becom a carpenter or a farmer's offspring take charge of the family farm. This reliance on tradition for the selection of a life's work was especially true of the Middle Ages and is still true in many underdevelo areas of the world.
Command, or Central Authoritarian Rule
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Not useful UsefulAn The enforcement of economic survival by absolute rule or dictatorship. example of this principle i building of the pyramids in ancient Egypt and the carrying out of the Soviet Union's Five-Year Plans the post-World War II era.
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The market system is not the simple exchange of goods which existed in primitive society, nor the commercial fairs of the Middle Ages. Nor is it a farm produce market or a stock exchange. The mark system supports and maintains an entire society. Unplanned and slow to evolve, it was brought about through the most far-reaching revolution of the Western world--the Economic Revolution.
Many factors combined to cause the revolution, such as the breakup of the manorial system, the decli guilds, the acceptance of the concepts of land, labor, and capital, the effects of the Renaissance, scien advancement, European voyages of discovery and exploration, the emergence of modern nation-state and the Protestant Reformation, which sanctioned the concept of profit.
The market system emerged only after bitter opposition to change by the people who tried to maintain their role in the status quo. Nevertheless, as the profit motive became respectable, the market system shape, bringing with it the economists who satisfactorily explained the complexities of the system. In 1776, Adam Smith wrote his amazing masterpiece, Inquiry into the Nature and Causes of the Wealth Nations, a work which helped society understand how changes in economics were leading toward a n plateau in human history. Commentary
Tradition, or the subsistence economy, bases itself on family, clan, or tribe. By this system, each unit produces all that it needs, and it consumes all that it produces. In many rural areas of Africa, Asia, an Latin America, the question of who will work and what work will be assigned to whom is settled by custom.
You're Reading a Preview The planned economy under central authoritarian rule differs from tradition in that the means of production and the authority to make economic decisions belong to the state. Examples existed in anc Unlock full access with a free trial. Egypt and Babylonia, where massive work projects were organized at the whim of the ruling class. In more recent times, the communist nations which were formed after the Russian Revolution in 1917 h Download With Free attempted the same large-scale operations as an outgrowth of aTrial centralized authority. In neither instan did individuals actualize their own ideas or goals.
In the market system, or market economy, economic decisions are decentralized: Each member of the labor force chooses which job to follow; each household selects what to buy with its income; and eac business decides what to produce, what production methods to use, and where to sell the resulting product. Modern examples exist in the United States, Western Europe, Japan, andthis Great Sign up to vote on title Britain. This capitalism, which is also called a free or private enterprise system, is named for its use of capital, or Useful Not useful investment funds.
None of the three methods, or systems, exists in pure form. Systems practiced today in the United Sta
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Economic System Sheet Music
The rules, laws, customs, and principles which govern the operation of an economy. Each economic system has its own peculiar problems and therefore produces its own solutions.
Economic Activity All action concerned with the creation and distribution of goods and services.
Consumption The process by which goods and services are utilized in satisfying human needs and wants.
Production The process of creating goods or services to be consumed.
Distribution a.
Physical
The process of transporting these goods and services to the people who need or want to consume them. b.
Personal
The division of income among persons. c.
Functional
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The categorization of income according to type--wages, rent, interest, and profit. Unlock full access with a free trial.
Basic Agents of Production of the Market System Land
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Natural resources.
Labor Human effort. Sign up to vote on this title
Capital
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The physical necessities for production--buildings, machinery, tools, equipment, and supplies.
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During the Middle Ages, land existed in the form of estates, manors, and principalities, but it was not sale" in the modern sense. Instead, the ownership of land provided the prestige and status around whi social life revolved. There were serfs, apprentices, and journeymen who worked, but there was no lab market--that is, people who were looking for jobs. The serfs were bound to the land of their masters, lords. The apprentices and journeymen served the master and were rigidly controlled by guild regulat Capital funds in the sense of private wealth existed, but not with any idea of investing, expanding, or taking risks. The goal of medieval landholders was to stabilize and protect the nation by financing wa and conquests and by underwriting the household expenses of kings. A good example is the Fugger banking family of Bavaria, which failed to pursue the amassing of wealth begun by their patriarch, A Fugger. Under the medieval system, advertising was unheard of; the basis of price was the just price. People lived as their ancestors had lived--off the output of the family land.
Without land, labor, and capital there was no production in the modern economic sense and therefore market system. Society in the Middle Ages was run by custom and tradition. This system changed aft the Economic Revolution, which represented a radical departure in commercial practices and concept The following factors were responsible for the Economic Revolution, which ushered in the market system:
The Renaissance
(1350-1600)--when the weakening of restrictive religion produced a more skeptical, inquiring attitud
The Scientific Revolution (1500-1700)--the discovery of scientificYou're principles whichalaid the foundations for the Industrial Reading Preview Revolution. Unlock full access with a free trial.
Emergence of Nation-States
(15th-l7th centuries)--a process that gave rise to royal patronage for favored industries, maritime trad Download With Free Trial and the standardization of laws, measurements, and currencies.
The Age of Exploration and Discovery
(l5th-l7th centuries)--an era which saw the rise of wealth in gold, silver, and raw resources from colon in the New World. Sign up to vote on this title
The Protestant Reformation
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(1500-1648)--an era which encouraged enterprise, the investment of capital, and the respectability of interest and profit.
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the all-important concern of society and criticized the acquisition of earthly material goods or riches. so it was that the New Testament phrase "For the love of money is the root of all evil" (I Timothy 6:10 blocked the development of the market system, which emphasized self-gain and profit rather than spirituality.
Gradually, however, the factors listed above helped shape the market system. The Renaissance encouraged a new individualism in economic affairs and contributed to the breakdown of the guild sy and to the rise of enterprise. Protestantism became a strong force in the alteration of concepts. Calvini especially encouraged enterprise. Some Calvinists saw prosperity as a sign of God's grace, and povert evidence of damnation. Thus the Protestant Reformation obliterated the old concept of the just price a the ban against charging interest on loans. Consequently, the loaning of money and the investment of capital became respectable, and Western society as a whole adopted the profit motive, an idea explain by Adam Smith, the father of modern economics.
CHAPTER 3: The Wonderful World of Adam Smith Summary
Adam Smith (1723-90), a quiet, nervous, scholarly Scottish bachelor, taught first at Oxford Universit and then at the University of Glasgow. He gained fame as a moral philosopher, and during his lifetim his book The Theory of Moral Sentiments earned the critics' appraisal as his best work. Consequently was already well known before publishing his enduring masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations.
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During a three-year tour of Europe as traveling tutor of the stepson of Charles Townshend, Smith me leading thinkers of the Age of Enlightenment, including Benjamin Franklin and Dr. Samuel Johnson. Unlock full access with a free trial. was particularly impressed with Francois Quesnay, principal spokesman for the French physiocrats, w believed that wealth arises from production. While traveling, Smith worked on his Wealth of Nations Download With Free Trial completed the book in 1776, ten years after his return to Scotland.
The Wealth of Nations, which resembles an encyclopedia, is far more than a mere textbook on econom One critic calls it "a history and criticism of all European civilization." Among a host of topics, it discusses the origin and use of money, apprenticeship, statistics, waste, the military, foreign trade, landlords, the clergy, royalty, farming, and "the late disturbances in the American colonies." Sign up to vote on this title
The book's 900 pages are demanding reading, for Smith often belabors without Usefula point usefuldrawing a Not conclusion. It is not actually original in the sense that its basic ideas are unique to Smith. The author refers to more than 100 authors in developing his arguments, including Locke and Hume. He borrows
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But how can the individual's selfish desires benefit society? What stops greed from overwhe the public, resulting in ruthless exploitation by profiteers? Smith answers that the individual, the process of providing for personal interests, unintentionally contributes to the economic w being of society. Therefore, the second law of the market is competition. The individual who overcharges for products soon learns that competitors will take away business by offering mo reasonable prices. If wages are too small, workers will hire out to another employer who will more for their services. Thus, selfish motives are tempered by interaction, resulting in social harmony.
According to Smith, under the market system each worker freely chooses a trade. Through such a multitude of choices, society reaps the benefit of having all its necessary tasks filled. The individual, motivated by self-interest, selects a particular task. Competition for these tasks prevents the individua from over-charging society. Thus, the two laws of the market--self-interest and competition--react up each other and form a balance, guaranteeing the survival of society.
In addition, the laws of the market not only insure that prices are competitive, but they also determine quantities of goods produced. As Smith explains, when the public demands more gloves than shoes, t will be a brisk business in gloves, but little demand for shoes. Consequently, the price of gloves will r as demand exceeds supply and pushes prices up. The price of shoes will go down because the supply exceeds the demand.
At this point, self-interest becomes a factor. Since there are higher profits in the glove business and a greater need for gloves, new producers begin manufacturing gloves. Workers move from shoe factori Reading a Preview glove factories. The result is that glove You're production rises and shoe production falls. Before long, the market achieves a balance. As the supply of gloves grows to meet demand, glove prices decrease. As Unlock full access with a free trial. supply of shoes falls below demand, shoe prices rise. This price increase stimulates shoe production. Therefore, the opposing forces of self-interest and competition balance the market.
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Finally, the laws of the market also regulate incomes of producers. When profits in one type of busine become unusually large, new producers are attracted to the business--until competition reduces the surplus of profit. In the same way, labor's wages are regulated--workers are attracted to higher paying industry until the labor supply lowers the pay scale to that of comparable jobs. By the same token, the reverse is true--when profits or wages are too low, producers or workers will leave that field for more lucrative areas. Sign up to vote on this title
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But the key to the operation of the laws of the market is that the market is "its own guardian." It is self regulating if left alone (laissez faire) so that competition can operate freely without government contr and without monopolies.
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Each worker specialized in a single operation; the total daily output was over 48,000 pins. If each wo were to handle all steps involved in the manufacture of pins, the total output per worker would fall to twenty pins per day for a total production of 200 pins. According to Smith, a simple factory worker, i comparison with an African king, lives a more luxurious life as a result of the work of specialized lab
In his vision of society's economic progress, Smith saw two additional fundamental laws which prope the market system in an ascending spiral of productivity and away from the "avarice of private greed. These laws he called the law of accumulation and the law of population. 3.
The law of accumulation refers to the accumulation of profits, which are put back into production. By accumulating profits, capitalists can purchase additional machinery, which wi stimulate further division and specialization of labor, thereby boosting productivity. Howeve additional machinery means more workers to work them. Eventually this increased demand f workers leads to higher and higher wages until profits vanish. At this point, further accumula are impossible.
4.
The solution to this obstacle is Smith's law of population. Labor, like any other commodit subject to demand. As the law of accumulation increases wages for workers, the numbers of t working class will increase. As the population of workers increases, its size becomes a counte force, pushing wages down. As a result of lower wages, profits for the capitalist will rise agai and accumulation will continue.
Thus, these two evolutionary laws form an endless chain for society through which progress is inevita You'rewages Reading a Preview Even though the Law of Population depresses toward a subsistence level, it never arrives there Conditions steadily improve, resulting in further accumulation for further investment. What is the end Unlock full access with a free trial. result? Not a utopia, but the economy, if left alone, will ultimately reach its "promised reward" --a wo where poverty and wealth balance each other.
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Commentary
To comprehend fully why Smith's Wealth of Nations was a revolutionary book, one must know some of the economy and living conditions in England in 1776. The nation was entering the second of three stages of capitalism. 1.
The first stage, known as commercial capitalism, occurred andtitle 1750. It was Sign between up to vote1450 on this brought about by the five factors which produced the Economic Revolution and was affected Useful Not useful geographic discoveries, colonization, and increase in overseas trade. The early capitalists wer protected by government control, subsidies, and monopolies and made their profits from transporting goods.
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sector of the economy, including prices, wages, hours of work, production, and foreign trade. The Ho of Lords represented the noble families, or landed aristocracy, which controlled the vote as well as pu office. Only 3 percent of the population affected the election of members to the less static House of Commons.
For the poor, conditions were abominable. Men, women, and children, stripped to the waist and stoop over in semi-darkness, worked in dank mineshafts. The masses struggled brutally for a meager existen When wool became a profitable commodity, land owners enclosed new pastures to raise sheep. The process of enclosure, which began in the sixteenth century, reached its height in the nineteenth centur with thousands of tenant farmers thrown off the land in order to make room for the more profitable sh Over 1.5 million of England's twelve to thirteen million population suffered poverty. Yet the grasping aristocracy, who considered the poor a necessary segment of a stable society, opposed any suggestion more equitable distribution of wealth.
Mercantilism, the dominant economic concept of the day, upheld the view of government and busines that real wealth consisted of gold and silver. Since the reign of Henry VIII, mercantilists sought a stro self-sufficient economy, protected by a strong central government. Their program called for the following: 1. 2. 3. 4. 5. 6. 7.
accumulation of gold and silver a favorable balance of trade through an excess of exports the self-sufficiency of the nation through the utilization of raw materials from either Engla her colonies You're Reading a Preview colonies to provide raw materials, as well as a market for England's manufactured goods low wages and long hours for workers Unlock full access with a free trial. high tariffs to protect home industry and to discourage imports a strong merchant marine.
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Adam Smith's Wealth of Nations launched a specific attack on the doctrine of mercantilism. In his celebrated Book IV, he called for free trade and the abolition of economic restraints and monopolies. Forget "balance of trade," he argued. "Wealth does not consist in money, or in gold and silver, but in money purchases, and is valuable only for purchasing." As opposed to the emphasis on agriculture by physiocrats, Smith emphasized manufacture. For Smith, the real wealth of nations consists of the goo which they can produce and trade. This condition can be accomplished Sign up toonly voteby onallowing this title production a commerce to develop freely, without controls. Useful Not useful
The replacement of mercantilism with the doctrine of laissez faire did not come immediately with the publication of Smith's views. It was not until the nineteenth century that the Wealth of Nations made
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What British capitalists stressed was Smith's gospel of laissez faire. Ignoring the philosopher's warnin about the dangers of monopoly, they justified resistance to government attempts at social legislation. During this era, child labor was common in poorly ventilated and unsanitary factories; manufacturers shackled children to machines. To quell child labor laws, factory owners quoted Wealth of Nations defense of deregulation. Accordingly, Adam Smith's proposals for protective measures for workers, farmers, consumers, and society as a whole; the abolition of slavery; and the control of monopolies were ignored. Capitalists championed the Wealth of Nations as a vindication of corrupt business practices. In this way, Adam Smith, the soft-spoken scholar, became the patron saint of free enterprise in the capitalistic world. In later times, Adam Smith, by thoroughly describing and explaining the market system, became the father of modern economics.
He founded the school of Classical Economists, whose chief spokesmen were David Ricardo and Tho Malthus.
CHAPTER 4: The Gloomy Presentiments of Parson Malthus and David Ricardo Summary
Adam Smith's vision of the world demonstrated glowing optimism when he founded the school of Classical Economists. Ironically, the chief spokesmen for that school--David Ricardo and Thomas Malthus--while accepting the principlesYou're which Reading Smith laida down, differed sharply from him in their Preview pessimistic views of an ominous future. Ricardo and Malthus violently disagreed with each other's Unlock full access with adangers free trial.of overpopulation. When one economic views on practically every point except one--the published a book or article developing a particular economic thesis, the other attacked it. Yet, despite differences of philosophy, the two economists wereWith congenial Download Free and Trialheld a high personal regard for eac other.
Of Dutch extraction, David Ricardo was a successful Jewish stockbroker who, by the age of 26, beca financially independent. He won widespread respect, and his social position ranked high, including membership in Parliament where he earned the title, "the man who educated Commons." His Princip of Political Economy (1817) helped shift the economic picture from Smith's optimism to a widesprea Sign up to avote on thiswho titlecreated a dry, pessimism. A practical man in financial matters, Ricardo was essentially theorist mechanistic picture of society. Useful Not useful
In contrast, the Reverend Thomas Malthus had none of Ricardo's good fortune or social success. He n
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The landlords' resentment was translated into action in Parliament where they held the majority. The result was the passage of the Corn Laws, which imposed duties on imported grains, thereby effectivel keeping low-priced grain out of England. The landlords' political clout was so great that Parliament d not repeal the Corn Laws until thirty years later.
Observing the advantageous position of the landlord, the struggle of competing capitalists, and the economic plight of the worker, David Ricardo envisioned an unpromising future for capitalism. To A Smith, society appeared balanced and harmonious, but, to Ricardo, society was a bitterly competitive contest. He viewed the worker as little more than an automaton, whose only human expression was a indulgence in sex. Instead of raising the family standard of living when wages rose, the worker produ more children and thereby increased the labor supply, offsetting the tendency for wages to rise as the supply met and exceeded the demand for workers. Thus, the worker was doomed to gain no more tha subsistence level of wages.
As for capitalists, Ricardo saw them as eternally seeking profits but engaged all the while in fierce competition with other capitalists. This situation naturally reduced profits. Worse, the capitalist was further squeezed by the landlord because profits depended largely on the amount of wages which had be paid, and the high price of grain always resulted in high food prices, which led to higher wages. W Ricardo considered the roles of the worker and the capitalist in the market system to be legitimate, he the landlord as a villain.
Ricardo explained rent--the landlord's income--as a very special kind of return which originated from differences in cost between productive land and less-productive land. In other words, the yield was so a Preview much greater from productive land that You're its cost Reading of production was much less than that of less-producti land. This difference in costs was represented in rent, for the selling price of the product--artificially Unlock full access with a free trial. due to great demand and lack of competition from imported grains--was the same for both yields.
DownloadorWith Free by Trial Rent in the nineteenth century was not controlled restricted free competition because land did n change hands. Thus, Ricardo viewed land as a monopoly. As the economy progressed and the popula increased, more farming was needed to meet the increased demand for grain necessary to feed that population. This situation pushed the selling price of grain up and increased the income of the landlor Thus the capitalist, who paid increased wages to the workers to enable them to live, also suffered. Therefore, concluded Ricardo, of the three parties in this bitter struggle--worker, capitalist, and landlo only the landlord profited. Sign up to vote on this title
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As to the future, it held little promise as the worker was doomed to a subsistence wage because of his growing family, and the capitalist had his profits gobbled up by the landlord. Ironically, Ricardo was himself a landlord. However, this fact did not prevent him from attacking what he saw as an evil, and
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worker to exist. By applying the doctrine of laissez faire, Ricardo argued that wages should be left to competition and should never be controlled by government interference. Capitalists agreed with his theory.
THOMAS R. MALTHUS (1766-1834) Summary
Oddly enough, since his income was modest and he owned no land, Thomas Malthus defended the landlord and attacked Ricardo's views. Instead of viewing landlords as villains, Malthus praised them ingenious capitalists. Still, Malthus was pessimistic over the future of capitalism, but for a different reason. He warned of general gluts, when the process of saving might lead to a lessened demand for goods and thereby to an excessive quantity of products without enough buyers. Although Ricardo ref this logic, Malthus did demonstrate his foresight in predicting depressions. While motivated by compassion for the poor, Malthus earned criticism by opposing relief and housing projects, objecting these measures on the grounds that charity is really cruelty in disguise. He reasoned that by keeping t poor alive, they would continue to propagate, producing more poor.
It was not his articles on economics nor his Principles of Political Economy (the same title as Ricard book) which made Malthus famous. Rather, it was his anonymously published Essay on the Principl Population as It Affects the Future Improvement of Society (1798), whose reception was so great that Malthus expanded the original edition from a 50,000-word pamphlet to a 600-page book. The effect changed Adam Smith's optimism to an outlook so bleak that Thomas Carlyle named economics "the dismal science." Critics heaped scorn and derision on "Parson" Malthus. Yet approval came from an You're Reading a Preview unexpected quarter, for David Ricardo substantiated Malthus' claims about the perils of rising popula Unlock full access with a free trial.
The inspiration for Malthus' masterpiece came from his reading of Political Justice , an incorrigible p of optimism by William Godwin. Godwin's vision of the future was a utopia containing neither war n Download With Free Trial Malthus expressed his dissension crime nor disease nor government--nothing but complete happiness. through his Essay on Population.
Malthus' thesis--known as the Malthusian Doctrine--states that population grows at a rate greater than means to feed it, and, if unchecked, the world's population will double every twenty-five years.
Sign vote on thisgrowth title of the Uni Being the first economic statistician, Malthus based this estimate onup thetopopulation States, where a real census appeared before it did in England and thatNot theuseful U.S. population Useful revealed doubled in twenty-five years. So, explained Malthus, population will continue to increase geometrica doubling itself from 1 to 2 to 4 to 8 to 16 to 32 times its original size until it reaches cataclysmic
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Second, there are the preventive checks of sexual abstinence and vice--that is, prostitution homosexuality. What Malthus advocated as the only possible solution is abstinence or "mora restraint." He called for late marriages because fertility lessens in the later years and passions cool. Even though he was acquainted with birth control, he disapproved of it on moral ground Being a minister, Malthus could hardly advocate vice, so he stressed the advantages of restrai However, the Reverend, a realistic observer of human conduct, doubted the ability of people practice restraint. Consequently, he predicted that the future of humankind will be starvation.
Are Malthus' facts correct? Yes, if measured by the actual rate of population growth in much of the w particularly in India and China. Why, then, has his prediction not come to pass? Basically, because of widespread use of modern birth control methods, especially in the Western world, and the tremendou increase in agricultural technology, which provides more than enough food in advanced countries. Commentary
While the majority of economists and scientists consider the Malthusian Doctrine invalid, an increasin number of demographers (scientists who study population statistics) warn that it is very real indeed. L than 20 percent of the world's people depend on preventive checks. These people live in advanced are of the world, especially Europe and the United States. The countries where population explosions occ are less technologically advanced areas in the Third World, notably India, China, and Latin America. Ironically, the increased use of modern sanitation, hygiene, and preventive medicine has increased the problem of overpopulation by reducing high death rates, which once served as a positive check.
Malthus was not as incorrect in his analysis as modern economists would have us believe, but the You're a Preview Malthusian Doctrine is still a specter that hauntsReading the minds of an increasing number of modern theoris In any case, the warnings of the chief spokesmen for the school of Classical Economists swayed the Unlock full access with a free trial. minds of the nineteenth century, and the wonderful world of Adam Smith became the gloomy world Thomas Malthus and David Ricardo, paving the way for the Utopian Socialists.
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CHAPTER 5: The Visions of the Utopian Socialists Summary
"Gloomy" describes not only the future described by Malthus and Ricardo, but also the actual world o England in the 1820s. On the Continent, the nation had triumphed in the long struggle against Napole Sign up to vote on this title but at home it wallowed in social evils brought on by the factory system. By current standards, worki conditions were terrible. Children of ten years and younger labored in such industrial centers as Not useful Useful Manchester and Birmingham in poorly ventilated buildings that lacked basic sanitary and safety measures. It was not unusual for children to be whipped--not only for a slight mistake, but to stimulat
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In the midst of this miasma appeared an unusual capitalist --Robert Owen.
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ROBERT OWEN (1771-1858)
The early life of Robert Owen resembles a Horatio Alger story. Born into a poor Welsh family, Owen schooling ended at age nine when he was apprenticed to a linen merchant. Nine years later, he moved Manchester, borrowed $100, and began manufacturing machinery for the textile industry. Bold for a s capitalist, he became factory manager of a large spinning mill, even though he knew nothing about th trade. By age twenty, Owen advanced to part owner, becoming the boy wonder of the textile industry few years later, with borrowed funds, he bought a group of textile mills at New Lanark, Scotland, ma the former owner's daughter, and made a fortune.
Within five years, Robert Owen revolutionized mill operation by eliminating the typical evils of the British factory system and transforming New Lanark into a model workers' community, which was vi by writers, reformers, and skeptics--even the Tsar of Russia. By raising wages, reducing hours of wo improving factory sanitation, rebuilding workers' homes, and providing schools for employees' childr he reversed the standard concept of labor relations. Having improved conditions through benevolence Owen gained productivity and efficiency. With New Lanark as a laboratory to test his hypothesis, he proved that a capitalist's concern for workers is profitable.
What was his philosophy? Owen believed that humanity is no better than its environment. Since peop are shaped by environment, improvement of that environment can produce a paradise on earth. Owen shocked business and government leaders by stating that the development of machine production, if You're Reading a Preview organized entirely for profit, would inevitably lead to poverty and degradation for workers. His soluti was cooperation. Envisioning Villages Unlock of Cooperation--planned communities where 800-1200 person full access with a free trial. worked together and lived in private apartments--Owen insisted that kitchens, reading rooms, and sitt rooms be used in common. Young children would be boarded; older children would tend the gardens Freeself-sufficiency. Trial community would carry on a variety of Download occupationsWith insuring At a distance from the commune would be the factory unit.
Naturally, with the concept of laissez faire in full vogue, few persons gave serious consideration to Owen's scheme. In spite of David Ricardo's willingness to test the plan, the idea lacked funds and sup Undaunted, Owen sold the New Lanark mill to finance New Harmony, a cooperative based in Posey Sign up to votescheme on this title County, Indiana, on July 4, 1826. Because he chose poor associates, Owen's lacked sufficient practical planning. One associate defrauded him and set up a whiskey distillery, communities sp useful Useful Notrival up, and the end result was complete failure. Owen lost 80 percent of his fortune. Finally, he sold the l and tried in vain to interest President Jackson and Santa Anna of Mexico in another venture.
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For two years, Owen traveled the countryside advocating unionism, but he met failure because he encountered too many obstacles. Not only did government disrupt the movement with anti-union legislation, but local unions failed to control their members, and strikes weakened the movement. Eve worse, Owen and his lieutenants quarreled and ended their association.
At the age of sixty-four, Robert Owen, the successful capitalist who disavowed capitalism, realized th his utopian projects had ended in failure. But he did not give up. Instead, he publicized his ideas in tra and wrote his Autobiography. At the age of eighty-seven, he died, still optimistic. The most romantic the Utopians, he influenced capitalism by proving that industry could sponsor humanitarian projects a still make profits. Commentary
Robert Owen, known as the founder of British socialism, first used the words socialist and communis However, he created a concept of socialism that is quite different from Karl Marx's concept of class warfare. Owen's philosophy passed down to the Fabian Society of Great Britain, whose leaders includ George Bernard Shaw, Sidney and Beatrice Webb, and H. G. Wells, and finally down to Britain's Lab Party, a moderate socialist party. The legacy of Robert Owen includes British socialism, the passage o legislation to correct deplorable working conditions, modern trade unions, and consumer cooperative
SAINT-SIMON (1760-1825) Summary
Count Henri de Rouvroy de Saint-Simon, a French aristocrat, possessed the spirit of democracy and You're Reading a Preview translated his convictions into action by fighting in the American Revolution. Renowned for his pigheadedness, he determined to become a philosopher anda launched Unlock full access with free trial. a survey of human knowledge which, along with an unsuccessful marriage, dissipated his finances and led to a bungled suicide attem His search resulted in Saint-Simon's belief in the brotherhood of man, which evolved into an industria Download With Free Trial religion.
This half-mad utopian stressed the necessity of work, which led to his conclusion that workers deserv society's greatest rewards, and idlers deserve the least. Reality proved that the opposite situation was t non-working aristocrats received the greatest share of wealth and did the least work. Saint-Simon proposed to reorganize society along the lines of a factory, with the function of government being Sign upand to vote on this title economic rather than political. With the aid of scientists, technicians, capitalists, government shou arrange for rewards to be allotted in proportion to each person's contribution. Rewards should g Useful social Not useful active members and not to lazy onlookers. But Saint-Simon offered only theory without working out practical details. After his death, his ideas degenerated into a mystical, hazy religion, with churches in
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vibrations" and an equal number of "descending vibrations." The advancement of humanity consisted eight stages. Four stages--Confusion, Savagery, Patriarchism, and Barbarousness--have already passe
Humanity now looks forward to Guaranteeism and eventually Harmony, the final stage when the sea become lemonade, peaceable species of animals will evolve, and people will live to 144 years, of whi 120 years will be spent in unrestricted sexual delight. Then the seesaw will tip and humanity will wor way backward to Confusion before beginning another life cycle. These eight stages would repeat themselves endlessly.
In spite of his optimistic vision of the future, Fourier saw the practical world as utterly disorganized. A solution, he proposed to reorganize society into phalanxes, or organized communes, of 1800 persons living under one roof, as in an ultra-modern hotel. Each person would have privacy, and the style of l would vary with one's ability to pay. Since everyone would have to work, there would be farmers, mechanics, and craftworkers. Children would perform dirty work and tend flowers. Residents would a few hours each day at whatever job appealed to them. A spirit of competition would exist.
Fourier believed that the phalanx concept would produce profits as high as 30 percent of the investme Every member would share profits, which would be divided on the basis of 5/12 to labor, 4/12 to cap and 3/12 to ability or talent. Everyone would be encouraged to become a part owner.
Surprisingly, the idea spread. In the U.S. alone, there were over forty phalanxes, including Brook Farm Oneida, New Icaria, and Trumbull. However, while some lasted for several years, none proved permanent.
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Commentary
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The one factor which utopian socialists shared was idealism: They dreamed of the betterment of humanity. Some of these dreams, particularly Fourier's, were ridiculous, but it takes dreams to stimula Download WithtoFree Trial and to present dreams to scoff people to progress. Of these utopian dreamers, all dared be different but Robert Owen's contributions were the most practical and the most lasting. These thinkers were bo utopians and socialists--economic reformers who attempted to create an ideal world by changing soci To understand their role, an explanation of several terms is in order:
Utopia
to vote thisideal title states which An impractical social, intellectual, or political scheme. "Utopia"Sign alsouprefers to on those because they lack ideal human beings. Utopias are based on what the author ought to be rather Not useful Useful thinks what actually exists. Famous examples include Plato's Republic, Sir Thomas More's Utopia (from wh the name comes), Sir Francis Bacon's New Atlantis, and Campanella's City of the Sun.
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The whole idea of socialism dates to early utopian schemes. As already noted, the term originated wit Robert Owen. But, as contrasted with communism, the socialists believe in attaining goals by an evolutionary process through democratic means.
Communism
Redistribution of wealth through revolution and class warfare. Basically, this belief differs from socia in its method of attaining the same goal.
Utopian Socialists Reformers who were inspired largely by the ideas of the Age of Enlightenment and the French Revolution, particularly the belief in progress and the perfectibility of humanity. They did not preach class hatred but appealed to the intellectual and capitalistic classes to reform society voluntarily.
Ironically, the term is taken from Karl Marx, who used it scornfully, saying that these reformers were nothing more than impractical idealists. Thus they were named utopian socialists rather than his brand practical revolutionary socialists. From the utopian socialists came the concept of the welfare state, he by modern socialists of Great Britain and Scandinavia, as well as others.
The last economist to be taken up in this chapter--John Stuart Mill--was not actually a utopian sociali but rather the champion of democratic liberalism, which was a broad-minded view of the principles o laissez faire. However, Mill gradually approached the socialist point of view and, in doing so, he adde respectablity to the ideas of the utopian You're socialists. Reading a Preview Unlock full access with a free trial. JOHN STUART MILL (1806-73)
Summary
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The son of James Mill, a famous economist, philosopher, and champion of laissez faire, John Stuart M a child prodigy, learned Greek at the age of three and studied Latin at eight. By the age of twelve, he h read Greek and Roman classics in the original as well as English philosophy and history. He absorbed geometry, algebra, and differential calculus, and wrote books on history. By the age of thirteen, he mastered logic and read major works on economics. Sign up to vote on this title
Mill did not write his philosophy of economics, however, until thirty years later. In the meantime, he Useful rights. useful she was women's NotBecause in love with Harriet Taylor, who educated him on the subject of married, their romance remained platonic for twenty years, even though they lived and traveled togeth They married after Mrs. Taylor's husband died.
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Opposed to government regulation and recognizing communism's threat to individualism, he believed legislation was necessary to protect women and children who worked in factories.
Consequently, by favoring government intervention to remedy injustice, Mill modifed the doctrine of laissez faire. He called for taxes on inheritance and rent. The success of his book led to Mill's publica of a cheap, one-volume edition, priced to reach the working class. Commentary
John Stuart Mill, founder of utilitarianism, is known for contributing to political science and ethics. H essay "On Liberty," a manifesto against despotism, is perhaps the finest piece written on individualism peaceful and reasonable man, Mill treasured his wife and the pursuit of knowledge. He later called himself a socialist, although his philosophy placed him somewhere between capitalism and socialism. was one of the first spokespersons favoring equal rights and education for women, the subject of his "Enfranchisement of Women" and The Subjection of Women (1869).
CHAPTER 6: The Inexorable System of Karl Marx Summary
In 1848, the threat of revolution was everywhere. The French endured a weak, dissolute king before fomenting riots; the Belgians likewise found no strength in royal leadership. Uprisings in Italy, Germ Czechoslovakia, and Austria imitated the unrest of the French. The songs of workers and the poems o romanticists echoed the volatile rumblings of internal discontent. Yet, despite all their zeal and furor, these stirrings failed because they were spontaneous, undisciplined, and disconnected.
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From this fierce, bloody clamor, however, a new voicewith made itself Unlock full access a free trial.heard--the voice of militant worke who comprised the Communist League. Their initial efforts proved insufficient against the reaction o European governments, but they presaged a turn of events in world economics which would make its Download With Trial Manifesto, written by Karl Ma TheFree Communist felt for years to come, for amid this turmoil appeared with the collaboration of Friedrich Engels.
Marx (1818-83), born in Germany, the second son of a liberal, middle-class Jewish family, pursued a college education, but to his father's dismay, he rejected the study of law. At universities in Bonn and Berlin, he dedicated himself to philosophy and came under the influence of Hegel's ideas. He found h up toparticularly vote on thishis titlebelief in ambition to teach blocked by authorities who rejected his liberalSign views, constitutional government and atheism. Useful Not useful
Marx turned to journalism and edited the Rheinische Zeitung, a radical newspaper which was suppres
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Wherever he went, Marx, a quarrelsome and intolerant activist, organized workers' movements and ed communist papers. Eventually, he fled to England to spend the remainder of his life in London. There and his family and a faithful servant spent a miserable existence of abject poverty and near-starvation Jenny and two of their five children died, and to add to his misery, Marx suffered from chronic boils.
Despite everything, Marx remained devoted to his family. His only steady income was derived from h reports on European political affairs to the New York Tribune, but, at times, Marx couldn't send his reports to New York because he lacked money for postage. After selling the family silver and valuabl he pawned his shoes and overcoat to survive. What kept his family going was Engels' generous financ aid; later, Marx came into a small inheritance from an old friend. Undoubtedly, these years of extrem poverty account for much of Marx's bitterness.
Marx worked in the British Museum library from ten to seven each day. He pored over books and manuscripts on economics, gathering and cataloging enormous amounts of data which formed the bas his Das Kapital. This meticulous book required eighteen years of preparation, with the main part-Volume I--published in 1867, after two years of editing.
Marx endured not only poverty but also disappointment. His later years were filled with bickering ov the validity of his interpretations among a motley assortment of dissidents. At one point near the end his life, disgusted with feuding, Marx declared, "I am not a Marxist." At his death, only Volume I of h masterpiece had been published. Engels published Volume II in 1885 and Volume III in 1894; the fin volume appeared in 1910, making a total of 2500 pages filled with minute, tedious points of economi theory.
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As Marx did not make a systematic presentation of his philosophy, it is necessary to discover his basi Unlock full access with a free trial. concepts from a study of The Communist Manifesto and Das Kapital, each of which was written for a different purpose. Marx developed the principle of dialectical materialism from the dialectical method Download Withoccurs Free Trial Hegel, a German philosopher who believed that change as the result of a blend of opposing fo The given idea, or thesis, when challenged by an opposing idea, or antithesis, results in a new concep synthesis, which is somewhat closer to the truth than the initial two ideas. Accepting this fundamenta premise, Marx went further. He substituted realism for Hegel's idealism and used it to explain world history. By stressing the reality of materialism, Marx evolved his economic interpretation of history. Marx's writings interpret history in terms of a class struggle for survival, which determines everythin else in human affairs. The history of humanity, according to Marx, Signis upprimarily to vote onthe thisstory title of one class' exploitation of another. Applying the theory of dialectical materialism, Marx determined that the Useful Not useful inevitable next step was a revolt of the overwhelming majority of workers, who would overthrow the ruling capitalists and establish a dictatorship of the proletariat, or workers. This economic cataclysm would lead to communal ownership and a return to a classless society.
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But how can there be profit if everything sells for an exact value?
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It would be simple for profits to arise if there are monopolies to set excessive prices, or if capitalists p less for labor than it is worth. Marx demonstrates that in its most perfect form capitalism is unworkab Therefore capitalism, with its monopolies and imperfections, has no chance for survival.
Das Kapital explains that profits arise from one product or commodity which is distinctive--labor. Because capitalists control all access to the means of production, the worker must sell labor-power to capitalist for its exact worth. Its value is what it takes to keep the laborer alive.
Marx concludes that labor actually produces more for the capitalist by working extra hours. The surpl value of labor gives rise to the capitalist's profits. In short, while the worker receives only a daily wag equal to subsistence requirements, actual production for a workday results in extra units of products. T value is translated into profits for the capitalist, who steals what is rightfully the worker's.
How can such a theft occur? Simple, answers Marx. It results when the capitalist monopolizes the me of production and forces the laborer to work a full day in order to remain employed. Since the typical factory work-week in England during Marx's time averaged slightly more than eighty hours, his conc of surplus value was not as farfetched as it seems today.
In Marx's view, the capitalist strives to obtain more surplus value by expanding production, thereby increasing profits. However, other capitalists compete in the same fashion, hiring more people and bidding against other capitalists, consequently driving up wages. This situation serves to decrease pro Reading a Preview Marx rejects Ricardo's notions because You're he believes that workers are too enlightened to continue increasing their offspring. At the same time he scornfully rejects the Malthusian Doctrine, labeling it Unlock full access with a free trial. libel on the human race." Instead, Marx sees the capitalist providing a solution through the adoption o labor-saving machinery. By substituting technology, the capitalist forces workers out of jobs, thus Download increasing the labor supply and decreasing wages. With Free Trial
However, the "solution" does not really solve the capitalist's problem, for as the capitalist adds equipm the cost of each device inhibits the realization of any surplus value from them. Therefore, the capitalis defeats the purpose of the purchase but must continue modernizing because competitors are continual adding machines to increase production. Consequently, the percentage of profit steadily falls until the point is reached where production is no longer profitable. Bankruptcies andthis small Sign up toresult vote on titlefirms go out business.
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If workers lose their jobs, labor is forced to accept cuts in wages. Machines are traded, human labor i rehired by the remaining firms, and, for awhile, surplus value and profits return. Not for long, howeve
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3.
Business runs in cycles of depression and boom.
4.
Huge firms dominate the business scene and suppress smaller firms.
5.
Finally, the working class overcomes factory owners and capitalism disappears.
Commentary
Some of Marx's predictions have indeed come true. Others are not so clear-cut. For example, profits d tend to fall within a business cycle, but they do not fall as steadily outside the business cycle. Some ha risen instead. Most significantly, even though indicators reflect Marxist philosophy, capitalism contin to thrive in the United States, Japan, and Great Britain, even if it has partly disappeared in Western Europe.
Russia, the communist bloc countries, and China are another matter. During the most intensive rule o communism, capitalism has remained suppressed except for a trickle of imports from the West, such Coca-Cola, drilling equipment, medicines, and computers. However, with the 1989 thaw in Cold War tensions, capitalism was one of the first aspects of Western democracy to penetrate the Iron Curtain a McDonald's brought "burgers and fries" to Moscow.
Obviously, Marx's vision of the future has proved too inflexible. Like the laws of gravity, he expected weakening of capitalism to fall into place without the slightest deviation. However, he failed to predic many mitigating factors, such as improvements in the lives of workers. Further, in no case where communism has triumphed has the revolution taken place in an industrialized nation at the hands of th Reading a Preview workers themselves. Russia, China, andYou're Cuba were all primarily agrarian economies when the revolut occurred. The same could be said for the satellite nations of Eastern Europe, except for Czechoslovak Unlock full access with a free trial.
Another worthy consideration is the fact that each Communist country was taken over from without a Download WithtoFree Trial during wartime. These nations did capitulate according Marx's predictions, but largely from the wo of professional revolutionaries. On the other hand, Germany and Italy, which chose fascism over communism during the late 1930s, today exhibit both state capitalism and private capitalism working partnership.
Non-communist economists find the weakest point in Das Kapital to be the theory of surplus value, f does not satisfactorily explain prices. Likewise, these economists doup not as the sole meas Sign toaccept vote onlabor this title of value. Yet, economists have not derived an agreed-upon substitute measure of value.
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Furthermore, liberals and humanitarians cannot accept Marx's economic interpretation of history. The deny that history evolves purely from economics--to the exclusion of religion, nationalism, and huma
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to wave--proof that his concepts cannot be lightly dismissed. In truth, Marx is entitled to be called the Prophet of the Proletariat. Here are a few terms to help clarify Marx's philosophy:
Marxism
Karl Marx's version of communism. While a typical Communist may believe that the final goal of communism will come into existence by a number of methods, the Marxist accepts Marx's every wor and explanation as the only way. Both forms of communism accept the concept of revolutionary socia --the attainment of a classless society by violent and bloody revolution, as opposed to the peaceful an democratic method of socialists. In terms of "left" and "right," Marxists are further left than Commun who are, in turn, to the "left" of Socialists.
Scientific Socialism Laws evolved by Marx and Engels which explain the economic determination of history, the class struggle, the inevitable downfall of capitalism, and the triumph of the proletariat.
Capitalists Financial backers of production; also called the "haute bourgeoisie," or high middle class.
Bourgeoisie
The middle class, technically divided between rich capitalists ("haute bourgeoisie") and small You're Reading a Preview shopkeepers, government officials, lawyers, doctors, teachers, and independent farmers. A term gene applied to people with private property. (Bourgeois is the adjective form.) Unlock full access with a free trial.
Proletariat
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The workers, or the lowly wage earners.
Anarchism
Rebellion against all forms of government. Anarchists are not content to wait for the withering away the state. They believe in ending government rule by assassinating public officials. Because they disd any type of government, anarchists are at the extreme "left" of all political groups. Sign up to vote on this title
Not useful Useful whose Political Justice The early modern theorist of the benefits of anarchism was William Godwin, (1793) expressed a utopian ideal. The father of anarchism, however, is Pierre Proudhon (1809-65) wh quarreled violently with Marx and whose book What Is Property? answered the question in the title b
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FRANCIS YSIDRO EDGEWORTH (1845-1926) Sheet Music
Edgeworth, a shy, retiring professor and brilliant scholar, became interested in economics because it d with quantities. He applied mathematics to economics and derived his Mathematical Psychics (1881 thesis stated that every man, based on mathematical formulas, lives for pleasure, leisure time, and material goods. Of course, skilled and talented people are better "pleasure machines" than others; likewise, males are more endowed with sensibility than females. In developing his thesis, Edgeworth justified the divisions of sex and status numerically and denounced the future of trade-unions, which h considered imperfections.
What was unique about Edgeworth was his use of mathematical formulation to prove his contentions. Essentially, he was conservative and defended his philosophy through the use of long, complicated algebraic expressions. He won a conservative following among fellow Victorians, and his book achie immediate success. While perhaps helpful in focusing attention on the use of scientific inquiry as an a economics, much of Edgeworth's work is worthless. His weakness lies in ignoring the human factor, b the fact that he was not ridiculed by his contemporaries gives significant insight into his era.
FREDERIC BASTIAT (1801-50)
In sharp contrast to Edgeworth, the French eccentric Bastiat heaped ridicule on the economic policies his age. He failed at farming and estate management, but succeeded in adding deft touches of humor t economics. In his Economic Sophisms, he attacked Socialists, defended free trade, and launched his m acerbic barbs for those who selfishly supported a protective tariff. Beneath his wit lay the truth of his You're Reading a Preview criticism--yet, in the Victorian world, he was labeled a crackpot. Unlock full access with a free trial.
HENRY GEORGE (1839-97) Download With Free Trial
With Henry George, the underworld of economics gained an American recruit--a rugged but unschoo individual who had been an adventurer, gold prospector, sailor, printer, pamphleteer, journalist for th San Francisco Times and Post , lecturer, bureaucrat, tramp, and politician. At one time, the University California considered him for the chair of political economy, but he ruined his chances by declaring i speech that "logical thinking was all that was needed for a study of economics." Sign up to vote on this title
Unlike his fellow dwellers in the underworld, during his lifetime he gained popularity--more in Engla Useful Not useful was elected than in the United States. An active proponent for his beliefs, he almost mayor of New Y City, barely losing to Tammany Hall's candidate and running ahead of Theodore Roosevelt. Drafted t run a second time in 1897, he died on election eve.
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Regardless of George's lack of logic, his book became a bestseller; he achieved overnight fame. Prog and Poverty received praise as the worthy successor to Smith's Wealth of Nations. George won an international reputation after a lecture tour to England. The single tax became an obsession with him. However, the official world of economics decried his ideas, so Henry George was exiled to the underworld of economics.
JOHN A. HOBSON (1858-40)
Of greater importance than the theories of Edgeworth, Bastiat, and George is the theme of the fourth economic heretic of the age--imperialism. The Victorian Era was a time when Great Britain, France, Germany, Belgium, Portugal, Holland, Italy, and Russia grabbed up colonies and economic concessio in Africa and Asia. The spirit of imperialism swept through the Western world, including the United States. Between the Napoleonic Wars (1803-15) and 1870, the laissez faire doctrine of free trade dominated.
From 1870 onward, however, various factors caused a drastic change in attitude and policy relating to colonial expansion. Notably, as a result of the rise in Europe's population, the desire for military base nationalism, and the Industrial Revolution, imperialism became an extremely popular policy with virtually all classes of society; its chief spokesman, Rudyard Kipling, praised its virtues.
Into this setting appeared John A. Hobson, a nervous, stuttering little man who took a critical look at capitalism and imperialism, in particular. He adopted John Ruskin's humanistic viewpoint toward economics, which stressed human values over cold statistics. By coauthoring an economic treatise wh You're Reading a Preview suggested that savings might lead to depression and unemployment, he lost favor with orthodox economists and was banished from London Extension Lectures. As a result, he became a UnlockUniversity full access with a free trial. social critic, examining topical questions.
Download With the Free Trial The chief topic of interest to England was Africa, where Boer War between Dutch colonists and t English in South Africa was brewing. Hobson journeyed to Africa, and his research there convinced h that his warning of the results of oversaving was justified. Returning to England, he quietly prepared major work, in which the effects of savings and imperialism were combined to form his thesis. He published Imperialism, a Study (1902), a devastating attack on capitalism as well as imperialism.
Sign up to vote on this title Hobson, a non-Marxist, went even further than Karl Marx. Whereas Marx predicted that capitalism w destroy itself, Hobson declared that imperialism would becometheUseful road to war, leading Not useful to the destruc of the world. In his view, capitalism has an insolvable problem: the rich get richer and the poor get poorer. Because of the vast inequality in the distribution of wealth, neither the rich nor the poor can
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nations each suffering the same glut, race each other to partition the world. With each nation trying to grab the biggest slice, bitter competition and rivalry promote the possibility of war.
Needless to say, Hobson's indictment of capitalism hardly dented the official economic thought of his day. He was dismissed into the same backwater with Bastiat and Henry George. Yet, from one quarte there came a warm response. Lenin, a Russian exile, read Hobson's work and appropriated its thesis, augmenting it and wrapping it in a glittering package --Imperialism, the Highest Stage of Capitalism (1916).
The antithesis of Lenin, Hobson disdained communism; his book analyzed capitalism and imperialism through logic. Hobson avoided class favoritism and refrained from turning thesis into dogma. He was puzzled over periods of history when capitalism showed little interest in imperialism. Further, even though his thesis points to the likelihood of war, he did not maintain that imperialism inevitably leads war.
On the other hand, Lenin declared that war was a certainty if capitalism and imperialism remained unchecked. He carried Marx's prediction of the doom of capitalism even further, showing that imperialism is the final stage in a downward spiral. For Lenin, imperialism is capitalism's death knell only did Stalin share this view, but hard-line communists today still hold to its truth. During the heigh the Cold War, Communist countries charged that all U.S. interest in underdeveloped countries was actually motivated by imperialistic designs, whether that interest was shown by private corporations o the Peace Corps.
You're Reading a Preview The U.S. reply to this charge has been that foreign investment and foreign trade alone do not represen imperialism, for there must be political interference and economic exploitation to justify a claim of Unlock full access with a free trial. imperialism. In point of fact, American foreign policy results from a defense of ideology--to protect le sophisticated nations from the intrusions of socialism. The U.S. differentiates between profit and plun Download With Free Trialnations is given by the Soviet Unio noting that the best example of a powerful country looting weaker itself, especially in the cases of Hungary and Afghanistan.
Another aspect to consider in the internationalization of capital is the fact that cheap goods manufactu in Hong Kong, Taiwan, Korea, or Mexico undersell similar products produced by the motherland. Su an intensification of competition ironically threatens American interests. The problem of imperialism proven that it inevitably lashes back against the nation which created Sign upit.to vote on this title
ALFRED MARSHALL (1842-1924)
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incorporate his system. Even more important is the fact that his most brilliant pupil, John Maynard Keynes, made a large splash in the world of economic thought.
Yet, brilliant as Marshall was, nothing that he said went far enough. The time which he wrote about i abstract. His economics, therefore, is a world of theory, and those theories are hopelessly unrelated to reality. Commentary
Imperialism refers to the extension of authority or control, either directly or indirectly, of one people another. In this sense, imperialism is as old as history. During the early days of Western civilization, Greece and Rome furnished worthy examples. In modern times, the Age of Discovery ushered in a pe when the nation-states of Europe raced to stake out colonies and to monopolize overseas trade. Portug Spain, Holland, France, and England formed a keen rivalry which provoked colonial wars in the early of the eighteenth century and continued through the Napoleonic Era. Then interest weakened as the doctrine of laissez faire replaced that of mercantilism.
A new period of imperialism, referred to as new imperialism, or economic imperialism, took place fro 1870-1914. This was Europe's golden age of imperialism, motivated by the effects of the Industrial Revolution and characterized by economic and political domination of underdeveloped nations. West Europe, which controlled most of world finance, commerce, military might, and intellectual life, exte its power over the peoples of Asia and Africa. The entire continent of Africa was so partitioned that o two nations remained independent by 1944--Ethiopia and Liberia. Asia was a fertile hunting ground f Europe, and vast but weak China soon became known as a "ripe melon." By 1914, some 283 million You're Reading a Preview whites controlled over 900 million non-Europeans, mostly in Africa and Asia. This staking out of colonies led to bitter rivalry among European nations and was a strong factor leading to the outbreak Unlock full access with a free trial. World War I.
Download With Free The basic question raised by Hobson was whether this stage ofTrial imperialism is inseparably related to capitalism. In other words, do capitalism and imperialism naturally go together? Communists charge they do. The U.S. and Western Europe say otherwise. Current developments today differ, for practica every form of imperialistic holding has reverted to the original owners. At the height of imperialism, sixths of the world was needy and defenseless. Today, the poor five-sixths are still impoverished, but are independent and defiantly aggressive, as is evident in South Africa's struggle against apartheid. Th formerly rich one-sixth is still rich, but on the defensive. The key question--and Sign up to vote onthe thisreason title for Hobson importance to economics--is whether the defiantly aggressive majority will be swayed by Marxism.
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From 1865 through the early part of the twentieth century, dishonesty was a virtue, the investor a gull fool, and the stock market a private casino which the public financed. A practical demonstration was William Rockefeller and Henry Rogers' purchase of Anaconda Copper Company by paper manipulati and without a cent of personal investment--resulting in a $36,000,000 profit. Official economists view this scene unperturbed, their thoughts wrapped up with such terms as enterprise, thrift and accumulat and consumption. At best, they apologized only slightly and shared the common blindness: They wer close to the scene to judge objectively. What was needed was the disinterested, detached view of an outsider, which was ultimately filled by the most aloof of skeptics, Thorstein Veblen.
THORSTEIN BUNDE VEBLEN (1857-1929)
Veblen, born of immigrant Norwegians in Wisconsin, grew up in a pioneer Norwegian community in Minnesota. His austere childhood reflected the drab farm life. He grew up remote and aloof, an aliena enigmatic man whose chief pattern of behavior was nonconformist. At the age of seventeen, Veblen's family sent him to study religion at a pious Lutheran college, where he promptly threw the faculty int uproar when it came his turn to suggest a way of converting the heathens. He titled his method "A Ple for Cannibalism." To add to his apostate behavior, he converted the niece of the college president to agnosticism and, several years later, married her.
Bad luck tagged Veblen. He found no immediate success in his teaching career. His first job lasted a and then the academy closed. He enrolled at Johns Hopkins on the expectation of a scholarship, whic never materialized. After transferring to Yale, he received a Ph.D. in 1884. Returning home, he read, loafed, and buried himself in political science, economics, sociology, and anthropology. By normal You're Reading a Preview standards, he was lazy and unassertive. He refused to make his bed, and when the dishes were dirty, h hosed them down. His eccentricity extended disdain the telephone. His isolation continued f Unlockto fullhis access with for a free trial. seven years until at the age of thirty-four, he yielded to family pressure to resume graduate studies.
Download With Free Trial in 1891 must have shocked the His appearance at the office of the economics department of Cornell conservative department chairman, for Veblen was wearing corduroy pants and a coonskin cap. Still, learning impressed the older man, and Veblen received a fellowship. The following year, he accompa the head of the department when the latter moved to the University of Chicago.
At the age of thirty-five, with a salary of $520 a year, Veblen earned a reputation among his students Signalthough up to vote this title the "C" to an refusing to take roll and assigning the grade of "C" to all students, heonupgraded when a student needed to qualify for a scholarship. Veblen felt thatUseful there were too useful many students. Th Not fewer he had, the better. Nevertheless, in spite of his rambling, mumbled lectures, his immense knowledge led to an annual salary of $1000 by 1903.
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orthodox American economists accepted European teachings, Veblen dug to the root of the economy discover the nature of his society.
The Theory of the Leisure Class examines the nature of economics and the meaning of leisure. While established economists explained human actions entirely by self-interest and competition, Veblen pro deeper. He doubted that self-interest held society together or that people preferred leisure over work.
Also, he discovered that there was no leisure class among American Indians, the Ainus of Japan, or Australia's bushmen. Everyone in these cultures worked--not for profit, but because of pride in workmanship and a common concern for their children's welfare.
His study of Polynesians, ancient Icelanders, and the shogunate system of feudal Japan revealed a different kind of society. A leisure class existed in each, but it was not an idle class. Instead, its memb worked hard at seizing riches through force or cunning and didn't contribute to the actual production o wealth. What was significant was that they prevailed with the approval of their community.
To Veblen, this fact marked a fundamental change in the attitude of the savage toward work. What ha once been a source of pride had become degraded by the transfer of approval to the plundering and predatory ways of the leisure class. Classical economists considered the desire for leisure inherent in human nature, but Veblen maintained that what was inherent in human nature was pride in work. As plundered, seized booty and women, and received admiration for their prowess, approval transferred the once-honored way of life to the spirit of plunder--and the leisure class gained respect.
You're a Preview As societies progressed, continued Veblen, the Reading leisure class changed its occupation and refined its methods, but its goal remained the same--the accumulation of goods without productive work, but by Unlock full access with a free trial. seizure. Applying his findings to the United States, Veblen wrote: ". . . by heredity human nature still and must indefinitely continue to be, savage human nature." Modern plunder did not exist for booty o Download With Free Trial women, but for the accumulation of money and its lavish display. The savage displayed numerous wi the barbarian his conquests of war; in the same vein, modern savages displayed wealth.
So Veblen arrived at a thesis: the leisure class advertises its superiority through conspicuous consumption--enjoying leisure more fully by being able to display it before the public. Thus, the mod U.S. businessman, by seeking and accumulating money and then displaying it--either subtly or conspicuously--is the modern counterpart of a savage heritage. Sign Furthermore, worker, th up to voteeveryone--the on this title middle-class citizen, and the capitalist--seeks through conspicuous expenditure and even the waste of Useful Not useful money to prove status.
Carrying the theme a step further, Veblen explained why a proletariat revolution, as Marx predicted, h
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Entrepreneurs, however, as members of the leisure class, are still acutely interested in the accumulatio profit. Their only opportunity of gaining profit is to cause breakdowns in production so that values fluctuate. Being on the inside, businesspeople then make a profit during the resulting confusion. Thus entrepreneur cunningly builds up credits, loans, and artificially high capitalizations. Unfortunately, in process, the efficiency of production remains continually off-balance.
Looking to the future, Veblen predicted the end of the capitalist--not through the action of Marx's proletariat, but by a tougher force: the machine. The recurring business crisis brought about by the entrepreneur would show to all the inability of the system to remain in balance. As the alternative, Ve hoped for the day when a corps of engineers would take over the running of the economy, along the l of a huge, well-ordered production machine. And if this didn't come to pass, then eventually the plundering spirit of Big Business would increase until the system gave way to fascism.
Veblen believed that the robber barons were interested in producing profits for themselves rather than producing goods. An example of artificially high capitalization is the founding of U.S. Steel in 1901.
Against real assets of some $682,000,000, almost twice that amount of stocks and bonds were issuedcapitalization cost of $150,000,000, all of which was paid for by public investors. So there was justification for Veblen's scorn of the American entrepreneur.
However, he greatly underestimated the ability of American democracy to correct these abuses. None Veblen's later works received the acclaim of his two earlier books. He remained a skeptic as he probe society's problems, and typical of his thinking is his Imperial Germany. Although the book is so criti You're Reading a Preview Germany that, at one time, the U.S. government wanted to use it for propaganda, the post office, for a time, barred it from the mails because it was uncomplimentary towards Great Britain and the United Unlock full access with a free trial. States. Veblen's Higher Learning in America (1918) was the strongest criticism ever leveled at the American university system. In the book, Veblen charged that the U.S. centers of learning were being With Freerelations. Trial transformed into centers of football andDownload high-powered public While given to extremes, Veb retained his value by utilizing anthropology and psychology as better tools with which to study societ than the impersonal and theoretical laws of economics. Commentary
Veblen's two major works formed a keen description of the robber barons and their savagery. The phr The up Robber Barons "robber barons" comes from the definitive and highly readable Sign by Matth to vote on this(1934), title Josephson. Also highly descriptive of these titans of Big Business is Ida M. Tarbell's History of the Useful Not useful Standard Oil Company (1903).
Veblen's "savage world" was savage on two counts. First, the practices of the actual business world w
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money. If alive today, Veblen would undoubtedly observe, with justification, the latest trend in the development and use of computers and robotics, as well as the fact that not only blue collar workers a being dispossessed from their jobs by the machine, but business executives find their positions increasingly threatened by computers.
CHAPTER 9: The Heresies of John Maynard Keynes Summary
Veblen died a few months before the "Great Crash" of 1929--when stock values reached an all-time h before tumbling down. There were no official warnings that such a financial catastrophe could occur. fact, quite the contrary. Prosperity was everywhere, from President Hoover down to the lowly clerk; optimism was the keynote. In the United States there were 45 million jobs, a total income of $77 billi and the average American family enjoyed the highest standard of living in history.
Magazines featured articles on how everyone could get rich--the formula was to save a portion of one earnings and invest regularly in good common stocks. The public listened, and not only bankers and businesspeople, but barbers, bootblacks, and clerks all rushed to place their orders on the stock excha It was easy to do, for they all could buy "on margin"--that is, for as little as 10 percent in cash.
Beneath this surface boom, however, lay disturbing, but unnoticed facts. There were two million unemployed. Banks failed at the rate of 700 a year. Ominously, the distribution of income placed 24,0 families at the upper level of income, and some 6 million at the bottom--a ratio of 1 to 250. In this era prosperity, the average American family was heavily mortgaged from excessive installment buying. You're Reading a Preview When the crash came, it caught the public by surprise, as well as titans of finance, government officia and expert economists. Unlock full access with a free trial.
The crash occurred in late October. Within two months, losses in stock value were awesome. Forty bi Download With Free Fortunes Trial dollars of value disappeared. The downward trend continued. were lost; suicides rose in num Nine million savings accounts vanished as banks failed by the thousands. Over 85,000 individual businesses were wiped out. Working women labored for 10-25 cents per hour. In New York City, breadlines formed at the rate of 2,000 people a day. The "Great Depression" loomed.
By 1933, the national income had dropped by almost half; the average standard of living declined to t Sign to avote on this title level of 1913. There were 14 million unemployed. The economy layup like fallen giant as a feeling of hopelessness swept the land. What no respectable economist admitted seemed a realityNot useful Usefulcouldhappen permanent depression.
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At King's College in Cambridge, his grasp of economics was such that Marshall urged him to follow academic career--which he declined in favor of something more lucrative. He placed second in civil service examinations for a position in the India Office but despised the work.
Resigning his position, Keynes returned to Cambridge, where he began a thirty-three-year stint as edi of the Economic Journal, England's most influential economic periodical. Keynes' diverse interests m him the exception to the saying "jack-of-all-trades and master of none." Indeed, he mastered debate, bridge, mountain climbing, modern and classical art, currency and finance, and economics. In later lif he became Lord Keynes, Baron of Tilton, and while serving as a director of the Bank of England, he operated a profitable theater.
His greatest opportunity came with World War I when he undertook key roles in the Treasury and the Paris Peace Conference of 1919. Shortly afterward, he made a fortune of over $2 million by spending half an hour in bed each day studying and speculating in the international markets.
Keynes attained national fame with the publication of his book The Economic Consequences of the P (1919). He stated that peace treaties are unjust and unworkable, with their apparent solutions ending i fiasco. While he was not the sole possessor of this observation, his view was the first written version which encouraged a complete revision of the treaties. The book succeeded, and international developments confirmed his thesis.
Keynes' A Treatise on Money (1930) attempts to explain how the economy operates and to examine i particular the problem of unexplained bursts of prosperity followed by lows. Earlier writers accounte You're Reading Preview this phenomenon by such theories as mental disorders of athe economy or the effect of sunspots. Keyn returned to Malthus' warning--saving can result in depression. Unlock full access with a free trial.
To understand Keynes' thesis, it is necessary to grasp the meaning of prosperity in market economy. T Download Trial true measure of a nation's prosperity is not gold andWith silverFree nor physical assets, but its national income which is the total of all individual incomes in a country. The chief characteristic of income is its flow from pocket to pocket via daily purchases and sales. Thus, this movement is largely natural and arises from the use and consumption of goods.
On the other hand, one part of income which does not flow in daily transactions is savings, which it serve represent the portion that is removed from the even flow of income. If to that portion hoarded, Sign up vote on thisistitle useful purpose. Significantly, no harm comes from the act of saving in modern nations because saving Useful Not useful are usually put into banks and invested in stocks and bonds, becoming available when business wishe expand production. In this event, savings flow into the economy. The increased capacity for productio more goods assures jobs and greater prosperity. Depression arises when savings are not invested into
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revolutionary solution: The General Theory of Employment, Interest, and Money (1936). In it, he ma the following pessimistic diagnosis of capitalism: 1.
There is nothing automatic in economic developments which will relieve a depression. An economy in depression can remain so indefinitely.
2.
Prosperity depends on savings being put to use. Otherwise, a descending spiral will result depression.
3.
Investment cannot be counted on, as it depends on the expansion of production. The entrep cannot be expected to increase production beyond demand for goods, so the capitalistic econo continuously lives in the shadow of collapse.
Keynes described how savings, in a time of depression, cannot continue to accumulate. Savings actua dry up, reduced to a trickle rather than a flow. When funds are needed for investment to stimulate the economy, there is no savings accumulation available. So the seesaw theory is invalid--replaced by the elevator theory.
The elevator concept maintains that the economy, like an elevator car, can stall at any level. Even wo a depression is a natural development, with every surge followed by a low. This phenomenon occurs because the economy, to avoid depression, must continually expand. However, capital expansion of a business is restricted by that business' market. So capital expansion does not move at an increasing ris but in spurts. Understandably, Keynes' book proved as revolutionary as those of Adam Smith and Ka Readingisaonly Preview Marx. Keynes turned the classical viewYou're that depression temporary into the bleak conclusion th depression is inherent in the system itself and can be permanent. Unlock full access with a free trial.
Of course, Keynes' vigorous mind did not halt on a dismal outlook for the future. He provided a cureWithundertaking Free Trial heavy government investment to government needs to "prime the pump" Download by deliberately stimulate the economy. By absorbing capital goods and spending whenever private enterprise is unab expand, government can insure a high level of economic movement. Therefore, governments should incorporate judicious spending programs into their permanent plans.
Keynes visited Washington in 1934 and observed President Franklin Roosevelt's New Deal methods policies combat depression. This practical demonstration of Keynes' thesis a defense for such Signbecame up to vote on this title The WPA (Works Progress Administration) and a host of other New Deal projects existed specificall Useful Not useful "prime the pump." Such measures increased the national income by fifty percent and made a large den unemployment rolls.
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preferred to use the old method of taxation and rationing, along with the purchase of bonds on a volun basis.
While labeled a radical by conservative economists, John Maynard Keynes had nothing but scorn for socialism and communism. Opposed to Marx's view that capitalism was doomed, Keynes believed in policy of managed capitalism, one which would invigorate and save capitalism. Basically, he was a conservative with one major aim--the creation of a capitalistic economy in which its greatest threat, unemployment, would be forever eliminated. Consequently, he engineered a plan to foster a living an growing capitalism. Commentary
John Maynard Keynes observed a world sick with widespread depression which almost ruined trade a brought nations to the brink of bankruptcy. Exports fell, national banks failed, leading countries abandoned the gold standard, foreign debts went unpaid, and workers suffered mass unemployment. result in Europe was a definite tendency toward dictatorial forms of government, as in Germany, Italy Austria, and Rumania. The less favored nations, notably Germany, Italy, and Japan, embarked on territorial expansion.
In the United States, against the background of the Roaring Twenties and the legacy of Coolidge prosperity, the air was filled with optimism. Herbert Hoover, president from 1929-33, promised "two chickens in every pot and two cars in every garage." Suddenly, the doomsday of Wall Street prosperi arrived without warning on October 24, 1929. By October 29, 16 million shares had been sold at staggering losses; by November 13th, $30 billion in capital values vanished. By the end of two month You're Reading a Preview the figure had increased to $40 billion. Just prior to the crash, the total value of stocks had been $87 billion. By March of 1933, it dropped to only $19 billion. This crash triggered the Great Depression f Unlock full access with a free trial. these reasons: 1.
Download With Free Trial Agricultural overexpansion resulted in surpluses.
2.
Industry overexpanded with too many factories and machines to meet demand for goods.
3.
Labor-saving machines replaced workers and produced more goods.
4.
Capital surpluses were created, producing an inequalitySign in income distribution. up to vote on this title
5.
Overexpansion of credit led to stock market speculation and installment buying.
6.
High tariff policies produced a decline in international trade
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Administration (NRA); Agricultural Adjustment Act (AAA); Federal Deposit Insurance Corporation (FDIC)--which guaranteed savings deposits in banks; Federal Securities Act, which led to the SEC (Securities and Exchange Commission) to regulate the stock market; Home Owner's Loan Corporatio (HOLC); and the Tennessee Valley Authority (TVA), plus a host of other New Deal measures.
Basic to the New Deal philosophy was the concept of "priming the pump" through federal action, wh Keynes so ably defended in his major work, The General Theory of Employment, Interest, and Mone The result of the New Deal was that while the measures failed to end the Great Depression, the down trend of the economy was halted and national confidence bounced back. In a world beset by commun and fascism, FDR saved American capitalism by using the goals and objectives of John Maynard Key
CHAPTER 10: The Contradictions of Joseph Schumpeter Summary
Unlike Thomas Malthus and Karl Marx in the previous century, John Maynard Keynes looked forwar better times for capitalism in the twenty-first century. In his Economic Possibilities for Our Grandchildren, he predicted that by the year 2030, the age-old problem of equal distribution of wealth migh solved. Even though Keynes did not foresee the panacea immediately after World War I, in later years he deduced that capitalism would continue its upward climb. Certainly he could not attribute the easing of hard times to the bounties of nature, since the supply of raw materials was quite obviously f and dwindling. Instead he lauded the ability of factory workers to utilize technology, thereby making succeeding generation more productive. For example, in the 1960s, American workers turned out ove five times the goods per hour in comparison with their forebears a century earlier. In like manner, Ke You're Reading a Preview envisioned a rosy future for his native England, calculating that by the year 2060, the nation would produce seven and one half times the wealth pastwith century. Unlockof fullthe access a free trial.
The canny student of economy, however, cannot accept this cheerful prognostication without further Download With Free Trial study of more than Marx and delving, for a complete analysis of modern times requires a thorough Keynes. A third spokesman is necessary: the brilliant gadfly Joseph Alois Schumpeter, a spirited, histrionic Viennese aristocrat and Harvard professor, who saw capitalism in the twentieth century in t of dynamic growth, yet he relegated it to destruction in the long run.
JOSEPH ALOIS SCHUMPETER (1883-50)
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useful A contemporary of Keynes, Joseph Alois Schumpeter was a native of Austria, born of solid, yet Useful Not undistinguished stock. Educated amid the upper crust at an exclusive school, he developed elitist airs followed him throughout his life. From being a brainy enfant terrible who challenged his teacher at th
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As Schumpeter elaborates, the only explanation for profits occurs when the static economy fails to fo its circular path, a situation which occurs when capitalists introduce innovative technology or organizational changes. Such ephemeral profit disappears after competitors emulate the innovation. In rapid order, innovation becomes the standard operating procedure. Like a huge, insatiable maw, the system swallows up ideas, turning them into the well-digested fuel of everyday productivity. Because introducers of these changes differ from the norm, Schumpeter awards them the title of entrepreneur, who is a business trailblazer, or risk-taker.
An additional surmise of Schumpeter's Theory of Economic Development is his explanation of the business cycle. As a swarm of imitators follows the trail blazed by the business pioneer, investment spending leads to a short-lived economic boom. Competition, as always, forces prices down. Ultimate profits disappear. Ironically, the entrepreneur is not necessarily the receiver of the profit generated by innovative idea. As a rule, profits tend to go to the business owner, with the entrepreneur forced out o picture by the dynamics of the new process.
Schumpeter paints an unappealing picture of the life of an entrepreneur--a talented specialist who dif markedly from the military leader or politician. Treated by society as an upstart or social pariah, the entrepreneur resides outside the limelight. Unlike people who are motivated by the urge for riches or the entrepreneur prefers instead to found a dynasty. Goaded by the will to conquer, to climb to the top the heap, this creator resembles a paladin, or "knight errant of the system." For the entrepreneur, the carrot at the end of the stick is not the monetary reward but the challenge itself, the vacuum into which innovation falls.
You're Reading aserved Preview After the publication of his ingenious work, Schumpeter as commissioner on the nationalizatio industry, an arm of the socialist German government, as well as finance minister of Austria. Unlock full access with a free trial.
Unfortunately, the unstable times did not permit his creative beacon to shine very far. After Schumpe With Free Trial moved into a position as bank presidentDownload in Vienna, the collapse of Europe's financial structure led to h personal debts. During this trying period, Schumpeter's young and charming wife, whom he had groo for her role as his helpmeet, died in childbirth. Like the fabled phoenix, Schumpeter rebounded. He built a career as a visiting professor in Japan, Germany, and the United States. At Harvard, he married economist Elizabeth Boody. Renewed, he allowed his creative juices to flow at will. Sign up to vote on this title
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In his thousand-page, two-volume Business Cycles, Schumpeter attempted to account for the Great Depression. He based his explanation on a description of three distinct types of business cycles:
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A more complete economic vision appears in Schumpeter's Capitalism, Socialism, and Democracy (1942), in which the author mounts an offensive thrust against his arch-enemy, Karl Marx. Departing from his predecessor's obsession with the antagonism between capitalist and worker, Schumpeter fast onto the bourgeois nature of the capitalist. Crucial to his denouncement of the wearer of the lounging is the author's depiction of plausible capitalism, which describes capitalism as an economic success bu sociological failure. The system bogs down in a bureaucratic nightmare of red tape, where entreprene input counts for little. Yet, even though Schumpeter's scenario plays well on the surface, it is riddled b the disease of rationalism, which gobbles up its own reason for being.
Schumpeter, from the vantage point of his cleverly constructed soapbox, appears to defeat Marx at hi own game. The whole breastwork of logic carries some measure of significance in that it predicts the bureaucratization of business and government as well as the ebb and ultimate foundering of the middl class ideal. Still, the fabric of his logic is weakened in fiber. The mood of Western capitalism did inde follow his predicted trends through the 1960s. However, it has not resigned itself to the benign sociali he envisioned.
The overwhelming weakness of "the world according to Schumpeter" is that the prognosis is more so and political than economic. In guessing which way the tide of history will direct itself, he lends cred to a belief in a noncapitalist elite, who will form the dynamic core of an otherwise inert society. Unlik Marx's paradigm, which centralizes a disgruntled proletariat in the heart of change, Schumpeter's mod places a changing cast of creative movers and shakers at the lead position of capitalistic innovation. Commentary
You're Preview Like the consummate poker player shoving theReading whole pota into a grandstand showdown, Schumpeter b the whole question of economics by reducing it to a single quibble: Is the function of economics anal Unlock full access with a free trial. or predictive? Do economists merely compartmentalize facts about life as we know it or do they serve visionaries? In other words, is it better to know where the market has been rather than where it's goin Download Free Obviously, Schumpeter himself chose the latter role,With opting to Trial lay out a vision of future generations th to muck about with the nuts and bolts of mundane money matters.
The driving force in Schumpeter's world-picture is his accolade to the talented few, the idea people w render service to an otherwise not-very-engaging business machine set in the well-worn ruts of samen An even more intriguing possibility is that Schumpeter, imbued with elitist notions from childhood, m have set up this paradigm as a means of self-glorification, seeing himself as the of elitism. Sign up to vote onswami this title
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Whatever his motivation, he has produced a passionate interest in the captains of industry--not the grasping, dog-eat-dog Vanderbilts, Rockefellers, and Morgans of the previous generation, but the Lee lacoccas and Donald Trumps, the Sam Waltons and Ray Krocs, whose genius expresses itself in the
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Estee Lauder, a Steven Jobs, or a Liz Claiborne, whose brain children never capitulate to mundane limitations.
CHAPTER 11: Behind the Worldly Philosophy
The concluding chapter addresses the achievement of economists as a whole. How useful have their writings been in interpreting actual events? Has prediction been the economist's aim? Is this undertak worthy endeavor? Among the economists described in the book, John Stuart Mill came closest to functioning as an economic prognosticator.
Unlike Mill, most theorists narrowed their perspectives, offering little more than a single option for th future. In comparison to the rest, Thomas Malthus' Essay on Population is the most limited and dogm in its prediction of doom from overpopulation. Conversely, Karl Marx, the "Great Predicter," remaine cautious about carving his predictions in stone.
The reason that economic prediction remains nebulous and hazy is that economics differs from more scientific studies, such as astronomy or physics. Because society exists in a state of flux, its behavior less predictable than the motions of the planets or the status of atoms in a molecule. Therefore, economists are willing to forecast only a generalized picture of future trends rather than particular det These economic generalizations, or laws, exist in a kind of historic vacuum, without recourse to inevi changes in background situations. Thus, the savvy student of economics expects some ambiguity in predictions and knows to apply common sense to any grand schematic design. In its normal state, prognostication is possible only on two conditions:
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1.
Behavioral regularities must govern individuals. Unlockthe full lives accessof with a free trial. These "givens" allow the econom to create "if . . . then" statements, such as Thomas Malthus' surmise that if workers continue t expand their families during boom times, then world population will soon outstrip necessary Free Trial resources to feed the multitudes.Download In similar With fashion, Karl Marx believed that if capitalists continued oppressing the working classes, their actions would lead to a class war and the inevitable collapse of capitalism.
2.
The outcome of the economy will influence society as a whole. Economists as a group share common belief that how people spend their money affects the "overall shape of things to com Sign up to votebe onoverlooked this title Because money is an integral part of the totality of society, it cannot in any analysis of civilization as a whole. Useful Not useful
These two conditions clarify how Schumpeter arrived at the conclusion that capitalists would evolve i
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Most significant to the trouncing of economic prediction is the fact that economists as a group have n been able to predict three trends: 1.
The growth of technology. Adam Smith was unable to guess that mass production would va alter the factory system. Moreover, David Ricardo had no inkling how drastically steam pow would alter production. In general, these market seers failed to understand how machines cou displace labor. Only Karl Marx surmised that machines might replace workers and even he w be astounded at modern computer-driven machinery, particularly the sophisticated robotics th bolsters the automotive industry.
2.
Changes in society's attitudes and behavior. Adam Smith assumed that workers would rem complacent when, in fact, they became more militant. Karl Marx, assuming that human outlo would remain static, failed to see that workers could resolve their differences with capitalists within the confines of a democratic society.
3.
More profound than the other two trends is the fact that regularities of economics are no lon regular. Adolph Lowe, who questions how the random behaviors of individuals in the marketplace manage to provide for the entire community, reveals that people establish econo order because of their singleminded acquisitiveness. However, the will to maximize personal finances is waning as capitalism develops. Human lives are so well furnished that modern capitalism resorts to advertising to convince the public that it needs the new products which factories are turning out. Thus, one of the dependable "givens" of the economic equation is no longer a sure thing.
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In short, economic vision has been bounded by turns and twists in the historical path. Each economic Unlock full access with a free trial. theory has reached only so far as the prevailing technology and lifestyle of the times allowed it. These aforementioned alterations in capitalism are therefore producing a less predictable market behavior.
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In a demonstrative break with his predecessors, Lowe contends that economics can no longer be gove from within. In order to maintain a balance, the economy requires active interference, such as tax inducements. Thus, the new function of economics is not to predict but to control. The old philosophi system, now completely out of date, must give way to an upgraded version--political economics.
At this point, one quality of economic prognostication seems more at any Signpertinent up to votethan on this title other time-Schumpeter's "preanalytic" grasp, which enables the economist to recognize coming trends, such as Useful Not useful Schumpeter's cadre of entrepreneurial elite or Mill's vision of human improvement. Even though thes projections derive from the personalities and backgrounds of the economists themselves, they must no dismissed as whimsical or unimportant. Rather, they merit distinction for being penetrating, courageo
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Breaking with earlier traditions, modern economics lauds such figures as Milton Friedman, spokespe for the free market, and John Kenneth Galbraith, whose philosophy runs counter to Friedman. Whatev the area of interest, economists at present suffer no lack of problems to solve, whether depression or inflation. Under the stimulus of massive change--globalization of the marketplace, third world starvat in an era of affluence, and threats to the industrial order as Japan faces off against the American giant economists look out on a host of possibilities. What mixed blessing will technology bring? Will the e survive the pollutants produced by industry? Has ecology gone too far toward destruction to be rescue Will the depletion of fossil fuels spell the end of the factory system? Is a global depression possible? technology extend into outer space?
In none of the above troubling situations will economics bear the final resolution. The citizen of tomorrow will find the role of politics encroaching more heavily on economic growth. Never again w the market chug along on its own steam, as it appeared to do in Adam Smith's day. Consequently, the of the worldly philosophers appears to have ended. Yet, their role in teaching humanity how to assess major cog of civilization has brought about a worthwhile reaction--a better understanding of itself.
ESSAY TOPICS AND REVIEW QUESTIONS 1.
Explain the common interest that bound the worldly philosophers under a single heading.
2.
Contrast the family and educational backgrounds of Thorstein Veblen, David Ricardo, Jose Schumpeter, and John Maynard Keynes.
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3.
Explain how economists such as Paul Samuelson and John Kenneth Galbraith can evolve full access with a free trial. economic theories that oppose Unlock each other diametrically.
4.
Forecast how the market systemDownload is affectedWith by significant Free Trialchange, such as the dearth of labo during wartime, the increase of women workers, the passage of child labor laws, competitive price wars between nations, the displacement of human workers by robots, the creation of new fuels, potential ecological disaster, depletion of natural resources, the exploration of outer spa and the failure of a major crop, such as cotton or soybeans.
5.
Explain why "laissez faire" was a significant concept in Adam Smith's time.
6.
Useful of Not useful Describe current attempts to solve the twofold problems overpopulation and world hun
7.
Explain why utopian philosophers fail to achieve their goals.
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14.
Explain the differences and similarities between socialism and communism.
15.
Discuss the role of the entrepreneur.
16.
Explain how President Franklin D. Roosevelt dealt with the problems of the Great Depres
17.
Debate the pros and cons of Pierre Proudhon's belief that "property is theft."
18.
Explain why David Ricardo described the landlord as a villain.
19.
Characterize Thorstein Veblen's comments on technology.
20.
Explain why economics differs from the other social sciences and why it can never be redu simplistic formulas.
SELECTED BIBLIOGRAPHY
ARCHIBALD, PETER W. Marx and the Missing Link : Human Nature. Atlantic Highlands, New Jersey Humanities Press, International, Inc., 1989.
BOWLES, SAMUEL, et al., Eds. Unconventional Wisdom : Essays in Honor of John Kenneth Galbraith Boston: Houghton Mifflin Co., 1989.
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GALBRAITH, JOHN KENNETH. Economics in Perspective : A Critical History. Boston: Houghton Miff Unlock full access with a free trial. Co., 1988. ---. The Great Crash of 1929. Boston: Houghton Co., Trial 1988. DownloadMifflin With Free
GEORGE, HENRY. The Land Question: Property in Land and the Condition of Labor. New York: The Robert Schalkenbach Foundation, 1982.
HEILBRONER , ROBERT L. Behind the Veil of Economics : Essays in The Worldly Philosophy. New Yo W. W. Norton & Co., Inc., 1989. Sign up to vote on this title
Not useful Useful and Keynes HELBURN, SUZANNE, AND DAVID BRAMHALL, Eds. Marx, Schumpeter, : A Centenary Celebration of Dissent. Armonk, New York: M. E. Sharpe, 1986.
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