Economics 493/593 - History of Economic Thought

Class Materials for Lecture 20 on Thursday 3/15/12

Brief Outline of Topics Covered in Lecture 20:

• The Keynesian School - John Maynard Keynes (ch. 15)
• Macroeconomics after Keynes (class notes)
• Modern Microeconomics (briefly, class notes)
• Review

Final: Thursday, March 22^nd at 1:00 p.m.

Additional readings on "What's Wrong with Macroeconomics?":

• Paul Krugman: How Did Economists Get It So Wrong?
• Barry Eichengreen: The Last Temptation of Risk
• Philip Lane: Economists and the Crisis
• David Altig: Economists got it wrong, but why?
• David Laidler: Lucas, Keynes, and the Crisis
• Nick Rowe: John Cochrane, Paul Krugman, and Say's Law, again
• Brad Delong: In Which Nick Rowe Says John Cochrane Commits "Small But important" Errors...
• Free Exchange: Which caricature do you prefer?
• David Warsh: Economics and Its Discontents
  
• Paul Krugman: Freshwater Rage
  
• Brad DeLong: More Musings on the Total Intellectual Train Wreck that is Today's Chicago School...
• Free Exchange: What the economists aren't explaining
• Barkley Rosser: How Seriously Wrong John Cochrane Is
• Brad DeLong: The Chicago School's Intellectual Collapse Continued: Richard Posner Is Uranus...
• Justin Wolfers: Lucas on the Shortcomings of Modern Macro
• Malin Hu: The Curious Case of Macroeconomics
• Mark Thoma: Who Has All the Answers?
• Murat Iyigun: Johnny B. Goode
• John Quiggin: The Macro Wars
• John Quiggin: Micro-based macro-introduction
• Mark Thoma: "Did Economists Ever Get it Right?"
• Narayana Kocherlakota: Some Thoughts on the State of Macro
• Arnold Kling: On the state of macro
• Justin Wolfers: The macro wars ... or not
• Michael Roberts: About the Great Marcoeconomic Debate
• David K. Levine: An Open Letter to Paul Krugman
• Gilles Saint‑Paul: A "modest" intellectual discipline
• Stephen Cecchetti, Piti Disyatat and Marion Kohler: Integrating financial stability: new models for a new challenge
• Brad DeLong: The State of Macro: Narayana Kocherlakota Leaves Me Puzzled
• Antonio Fatas and Ilian Mihov: Did economists ever get it right?
• Robert Levine: On Krugman
• The Economist: Lucas Roundtable (Lucas)
• The Economist: What went wrong with economics
• The Economist: The other-wordly philosophers
• The Economist: Efficiency and beyond
• Cosmic Variance: Mistaking Beauty for Truth
• Mark Gertler: The State of Macroeconomics
• Willem Buiter The unfortunate uselessness of most ’state of the art’ academic monetary economics
• Mark Thoma "The Unfortunate Uselessness of Most 'State of the Art' Academic Monetary Economics"
• Tim Harford Are those who sweat the big stuff in meltdown?
• Francesco Caselli: Economists are actively engaged in seeking remedies to the crisis
• Mark Thoma Macroeconomic Meltdown?
• Daniel Kahneman: Irrational everything
• Mark Thoma: Are Macroeconomic Models Useful?
• Roman Frydman: Mathematical Formalism in Economics
• Dani Rodrik: Blame economists, not economics
• Mark Thoma The State of Macroeconomics
• George Waters: "Equilibrium and Meltdown"
• Paul Krugman and Roman Frydman: "The Gratuitous Ignorance of Many of our Economists"
• David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux The Financial Crisis and the Systemic Failure of Academic Economics
• Kenneth Arrow: Risky business

Review Questions for the Final

Introduction

1.  Why does the book choose to begin the study of the evolution of economic thought around the year 1500?

2.  What factors were important in the transition from feudalism to capitalism? Discuss each factor.

Mercantilism

1.  Discuss the main features and policies associated with mercantilism.

2.  Why did the mercantilists focus on exchange as the source of wealth? What was the role of the government under mercantilism?

3.  Why did mercantilists try to achieve full employment?

4.  What was Thomas Mun's major contribution to mercantilist ideas?

5.  Discuss the ideas and contributions of Jean Babtiste Colbert.

6.  Discuss the ideas and contributions of Sir William Petty.

Physiocrats

 1.  Who were the Physiocrats? What policies did they advocate, and what problems did their policies address?

2.  Discuss the ideas and contributions of Francois Quesnay. Explain Quesnay's Tableau Economique. Why is the table important in the history of economic thought?

3.  Discuss the ideas and contributions of Anne Robert Turgot. Why was Turgot dismissed from his duties as finance minister in 1776?

Capitalist Precursors

1.  Discuss the ideas and contributions of Richard Cantillon

2.  Discuss the ideas and contributions of David Hume.

3.  What is the price-specie flow mechanism and why is it important? 

Adam Smith

 1. What is the main message of Adam Smith's book The Theory of Moral Sentiments?

2.  According to Adam Smith, what are the four stages of economic and social development? What are the characteristics of each stage?

3.  What is the role of the state according to Adam Smith? What makes for good taxes?

4.  What reasons did Adam Smith give for increases in productivity brought about by the division of labor? What is the most fundamental division of labor? How does productive labor differ from unproductive labor, and why did he make this distinction? Ultimately, what is responsible for the wealth of nations?

5.  Why does Adam Smith believe in free international trade? Are tariffs ever acceptable?

6.  According to Adam Smith, what is the difference between the market price and the natural price? Why is this distinction important?

7.  Why did Adam Smith adopt an "adding up" theory of value for economies that had advanced past the primitive stage?

8. According to Smith, why do wages differ across occupations? What was he trying to explain by making this distinction?

9. What is the wages fund doctrine?

10.  What did Smith think would happen to the rate of profit over time? What reasons did he give for his conclusion?

Robert Malthus

1.  Explain Malthus' population theory. What policy implications did Malthus draw from this analysis?

2.  Explain Malthus's theory of gluts. What policy conclusions did he draw from the analysis?

David Ricardo

1.  Explain Ricardo's theory of rent and the law of diminishing returns. What policy conclusions did he draw from this analysis?

2.  Explain Ricardo's theory of comparative advantage.

3.  Why did Ricardo focus on distribution rather than production?

4.  Explain Ricardo's theory of distribution. Also explain why Ricardo believed that rent and profit are inversely related, and that that profit and wages are inversely related. That is, explain and show graphically that, as population grows and the demand for corn rises, rents and wages go up, while profit falls.

5.  Why does Ricardo believe the economy will end up in a stationary (no growth) long-run steady state?

Jeremy Bentham

1.  How does hedonism differ from utilitarianism?

2.  How did Bentham's utilitarianism lead him to egalitarian reform proposals? Why didn't he advocate complete equality of income?

J.B. Say

1.  According to J.B. Say, what was the fourth factor of production? How did the addition of this fourth factor of production this remove potential sources of class conflict from classical theory?

2.  What is Say's law? What are the implications of Say's law?

Nassau William Senior

1.  Discuss Nassau William Senior's beliefs concerning positive and normative economics.

2.  Discuss Nassau William Senior's views on the poor laws. What policies did he help to enact as a member of the Poor Law Inquiry Commission?

John Stuart Mill

1.  How do Mill's views on utility differ from Bentham's?

2.  According to Mill, what are the three types of goods? Which is the most common?

3.  What are Mill's views on government intervention?

Karl Marx

1.  Define and explain the following modes of production: Capitalism, State Capitalism, State Socialism, Utopian Socialism, Anarchism, Marxian Socialism (including the six stages of production), and Syndicalism.

2.  According to Marx, in the transition from slavery to feudalism to capitalism, how does each new system fool workers into working harder even though, in the end, they are no better off (i.e. still at subsistence)?

3.  What were Marx's views on the writings of Smith, Ricardo, Mill, Bentham, Say, and Senior? Why was he critical of much of what they wrote?

4.  Explain Marx's theory of exploitation.

5.  What are the reasons, according to Marx, for the falling rate of profit over time, capital accumulation, and crises? What are the consequences of the falling rate of profit, capital accumulation, and crises?

William Stanley Jevons and Carl Menger

1.  What was Jevons' main contribution to the theory of exchange?

2.  Explain Jevons' determination of the length of the working day.

3.  What is the water-diamond paradox? How does Jevons solve it?

4.  Discuss and illustrate (using a table) Menger's ideas on total and marginal utility.

5.  Compare and contrast Menger's and Jevon's views on total and marginal utility.

6.  What are Menger's views on factor price determination? How can they be used to refute the labor theory of value?

John Bates Clark

1.  Explain Clark's marginal productivity theory and how it was used to counter Marx's claim that labor is exploited under capitalism. 

2.  Discuss the ethical implications of marginal productivity theory.

Francis Ysidro Edgeworth

1.  What was Edgeworth's main contribution to utility theory? Explain.

2.  Explain the contributions made by Edgeworth to production theory.

Alfred Marshall

1.  Explain why Marshall felt that economics is the most precise of all the social sciences.

2.  Explain Marshall's views on consumer and producer surplus.

3.  According to Marshall, what determines prices, supply or demand? Does the time period matter?

4.  What factors, according to Marshall, cause firms to become more efficient as they grow? What determines whether they are increasing or decreasing cost industries? Why don't decreasing cost industries eventually become monopolized?

5.  Explain why Marshall believed that taxing increasing cost industries and using the proceeds to subsidize decreasing cost industries is a desirable thing to do.

6.  Why do modern supply and demand diagrams have the independent variable on vertical axis rather than, as is more usual, the dependent variable?

Leon Walras

1.  How does general equilibrium analysis differ from partial equilibrium analysis? What does Walras' general equilibrium analysis have to say about the determination of input and output prices, i.e. the debate over whether input prices cause output prices or vice-versa?

John Gustav Knut Wicksell

1.  According to Wicksell, how does inflation or deflation come about? Can can inflation/deflation be controlled, i.e. can prices be stabilized? If so, how?

2.  What is forced saving?

Irving Fisher

1.  According to Irving Fisher, how is the interest rate determined? What competing forces are in balance when the interest rate is at its equilibrium value?

2.  What is the Fisher equation? What is the Fisher hypothesis?

3.  Explain Fisher's theory of debt deflation.

John Maynard Keynes

1.  What economic conditions set the stage for the emergence of Keynesian economics? Prior to Keynesian economics, what was the prevailing view regarding government intervention to cure recessions? What was the basis for this view? What is the Keynesian view on government intervention?

2.  How is income determined in the Keynesian model? What are the key forces that cause fluctuations in economic activity, i.e. what role do the MPC, MEC, and interest rates interact to produce economic fluctuations? Where do expectations (animal spirits) fit into this explanation? What role can government play in stabilizing the economy?

Class Materials for Lecture 19 on Tuesday 3/13/12

Brief Outline of Topics Covered in Lecture 19:

• The Monetarist School - Wicksell and Fisher (class notes - cont.)
• The Keynesian School - John Maynard Keynes (ch. 15)

John Maynard Keynes (right) and Harry Dexter White at the Bretton Woods Conference

Additional Reading:

[Note: This was written in 2006] A colleague who was believed to be the last surviving U.S. economist involved in the Bretton-Woods negotiations, Ray Mikesell:

UO professor, Bretton Woods economist, dies at age 93, by Rebecca Nolan, The Register-Guard, 2006: A University of Oregon professor, believed to be the last surviving economist from the 1944 Bretton Woods conference that led to the creation of the World Bank and the International Monetary Fund, died Tuesday at his home in Eugene. Raymond Mikesell died of age-related causes. He was 93. ...

Toward the end of World War II, he became an adviser to Assistant Treasury Secretary Harry Dexter White, who led U.S. efforts to shape the world's economy after the war. Mikesell was present at the Bretton Woods conference, where White and the British economist John Maynard Keynes negotiated the design of the World Bank, the IMF and the General Agreement on Tariffs and Trade. The institutions funded the European recovery and laid the foundation for the postwar economic expansion.

Mikesell provided data for White to use against Keynes' attempts to preserve British interests. ... [Update: NY Times story]

Among all countries involved in the Bretton Woods negotiations the last surviving economist is, as far as I'm aware, Dr. Jacques J. Polak who was a member of the Netherlands delegation. He is 92, lives in Washington, D.C., and maintains an office at the IMF where he continues to write.

One of Ray's many books, Foreign Adventures of an Economist written in 2000, gives details of his experiences in all sorts of negotiations and advisory capacities.  One part of the book details his experiences at Bretton Woods and it's a history worth preserving. Ray's main lasting contribution at the conference was to determine the IMF and World Bank formula used to set quotas:

This exercise required many calculations with a 1940s-style calculator, using a number of variables and weights for each country. If I had had access to a modern computer, I could probably have come up with a better formula. ... My formula was ... used as a basis for determining the IMF and World Bank quotas at Bretton Woods for most member countries represented at the conference. Thereafter, it was used in a somewhat revised form for new members joining the Fund. In fact, the formula is still used, but with special adjustments for individual countries. I take no pride in having authored the formula and sometimes apologize for it as my claim to infamy! It has continued to be used in large part because the Fund wanted to apply the same conditions in determining quotas for new members as were applied to the original members.

The book has a lot of interesting detail and insider information on the negotiations, and I've included the pdf's for the chapters on Bretton-Woods below for anyone who is interested. Here's one small section:

A Note on Personalities
John Maynard Keynes

As a young academic who had studied and taught both The Treatise on Money and The General Theory I was awed by Keynes and grateful that I could sit in meetings with him. Although he fought hard for positions he regarded as important for Britain's welfare, his economic arguments were academic and dispassionate. Keynes could accept philosophically the economic advantages of multilateral trade while continuing to defend a discriminatory sterling area in terms of Britain's national interest.

There was a sharp contrast between the literary quality of Keynes's ICU proposal and the legalistic formulation of the July 1943 version of the White plan. Keynes displayed arrogance in the elegant language of an educated British lord. He disliked the style and format of the Fund's Articles of Agreement. He said they were written in Cherokee, and he blamed the language on the Treasury Department's lawyers. Keynes frequently complained that Americans were too dependent on attorneys, and once suggested that "when the Mayflower sailed from Plymouth, it must have been entirely filled with lawyers."

Keynes was capable of displaying temper and once threw one of White's drafts to the floor, but he usually expressed his anger through sarcasm. He always had an air of dignity and did not join the revelry at the Bretton Woods nightclub. I never saw him in sport clothes. Nevertheless, he was approachable. Junior members, such as myself, were able to talk privately with him, and I always found him willing to answer my questions. If we took too much time, however, Lady Keynes would tiptoe over to protect him from becoming too tired. Those of us who were privileged to shake his limp hand on the train from Savannah to Washington following a light heart attack were left with the memory of saying farewell to a truly noble man.

Harry White

Personalities played an important role in the Bretton Woods debates and in the final outcome. I saw White in numerous meetings and on dozens of other occasions when we talked alone in his Treasury Department office. His Monetary Research staff was largely composed of former academicians, and many of us returned to universities after the war. The staff was intensely loyal to White, and he respected us as scholars and strongly supported us even when he thought we had made mistakes. I do not recall White's embarrassing any staff member by dressing him down, but he showed another side when he was involved in negotiations outside the Treasury Department. He was often brusque, even crude, in his meetings with Keynes and the British delegation.

When annoyed, he sometimes cynically addressed Keynes as "Your Royal Highness" or "Your Lordship." Lord Robbins, who participated in many of the pre-Bretton Woods meetings but was not close to White, described White well in his book Autobiography of an Economist:

It is true that White was not a very beautiful character. He was brash, truculent, and, I suspect, somewhat unscrupulous where his own interests were concerned. In his younger days he had been the victim of academic unemployment, possibly due to the discreditable anti-Semitism which at that time tended to affect the policies of the great university with which he had been associated; and I am fairly clear that he was determined that henceforth Harry White should not be worsted in the struggle for survival-- or eminence. But that he was in any way associated with the groups in the United States who actively wished harm or wished to exploit our [Britain's] position of weakness will not stand up to examination for a moment. (Robbins, 1971).

White often expressed to his staff his hostility toward the State Department, with which he frequently struggled for power within the U.S. government. Like Morgenthau, he wanted the Treasury Department to be the center of postwar economic policy and planning. This helps to explain the comprehensive nature of the original White plan. International financial institutions were not a high priority in the State Department; without White's zeal, there probably would not have been a Fund or a Bank. The Bretton Woods institutions might not have come into being if they had not been well advanced before the end of the war, since by then there was a plethora of immediate economic problems that these institutions were not equipped to handle.

White sought to conduct his own foreign policy independently of the State Department. He dealt directly with foreign officials in Washington, and members of the Monetary Research staff in American embassies in Allied countries, including myself, secretly reported directly to White without going through their embassies. White sometimes used the press to promote his policies that were in opposition to those of the State Department. On one occasion, while I was alone with him in his office, he dictated over the phone a long, top-secret State Department statement to a reporter. I do not know the reasons for White's antipathy toward the State Department, but it was not directed at individuals since he had close relations with some of them. I believe it was a reaction to the State Department's traditional insistence that it have commanding responsibility over foreign policy.

White believed that the U.S. government should have sought closer cooperation with the Russians. Through certain members of his staff, he provided information to and discussed policy with Soviet embassy officials. These relations were later discovered by the FBI and led to White's dismissal from the government, but they were not known to most of us in Monetary Research.

Many people have asked me if White was a Communist. I am convinced that he was not. White believed in free markets and capitalism and devoted his energies to planning for a postwar world with free and nondiscriminatory trade and payments. He was, however, quite willing to deal with Communist officials to achieve his objectives. The Soviet Union shared his political objectives regarding postwar Germany, and he believed that Soviet officials would support the Fund and the Bank proposals. He did not share the pervasive fear that the Communist ideology would spread to the rest of the world, or that the Soviet Union might dominate the world by military conquest. He believed that a Communist state could operate under a system of nondiscriminatory trade rules, abiding by the trade and exchange obligations of his plan.

White's associates who were later accused of being spies for the Soviet Union -- Sol Adler, Frank Coe, and Harold Glasser -- never indicated to me that they were not completely loyal to the United States or that they did not believe in a democratic capitalist society. I knew them so well personally that it is difficult for me to believe they could have concealed communist ideology from me. Although they may have had some association with the American Communist movement in their youth, as did many of my college acquaintances in the 1930s, I believe that the accusations directed against them arose from White's propensity to carry on direct relations with the Soviet government outside regular diplomatic channels. If these same activities had been carried on with the British or Canadians, they would have been acceptable. White and his closest associates simply ran their own foreign ministry.

A few weeks before White's death, he and I were speakers at a conference of the American Academy of Political and Social Science in Philadelphia. After the evening meeting on April 19, 1947, I spent a couple of hours with him in the lobby of the Benjamin Franklin Hotel. He was in a reflective mood, and we reminisced about the events leading to the creation of the Bretton Woods institutions. White had already been compelled to give up his position as the U.S. executive director of the Fund. He had been working as a consultant to the Chilean government and had recently returned from Santiago. He was scheduled to testify before the House Committee on Un-American Activities, but he spoke very confidently of being able to disprove the charges against him and appeared to look forward to the opportunity. White was charged with providing confidential information to the Soviet Union, but I have never believed he gave any information that was harmful to U.S. national interests. White did speak of his heart condition and, when we parted, he apologized for taking the elevator rather than walking the two flights to where both of our rooms were located. Some say he committed suicide to avoid testifying before the House committee. I do not believe it.

Class Materials for Lecture 18 on Thursday 3/8/12

Brief Outline of Topics Covered in Lecture 18:

• The Neoclassical School ‑ Marshal l[cont.]
• The Neoclassical School ‑ Walras
• The Monetarist School - Wicksell, Fisher, and Hawtrey (class notes)

Homework 7

Economics 493
Winter 2012
Homework 8
Due Thursday, March 15

1. What factors, according to Marshall, cause firms to become more efficient as they grow? What determines whether they are increasing or decreasing cost industries? Why don't decreasing cost industries eventually become monopolized?

2. Explain why Marshall believed that taxing increasing cost industries and using the proceeds to subsidize decreasing cost industries is a desirable thing to do.

3. How does general equilibrium analysis differ from partial equilibrium analysis? What does Walras' general equilibrium analysis have to say about the determination of input and output prices, i.e. the debate over whether input prices cause output prices or vice-versa?

4. According to Wicksell, how does inflation or deflation come about? Can can inflation/deflation be controlled, i.e. can prices be stabilized? If so, how?

Class Materials for Lecture 17 on Tuesday 3/6/12

Brief Outline of Topics Covered in Lecture 17:

• The Neoclassical School ‑ Marshall Ch.
• The Neoclassical School ‑ Walras
• The Monetarist School - Wicksell, Fisher, and Hawtrey (class notes)

Irving Fisher (1867-1947)

Additional Reading

Knut Wicksell: Economist Knut Wicksell made his name among the Swedish public with a series of provocative lectures on the causes of prostitution, drunkenness, poverty, and overpopulation. A malthusian, the young Wicksell advocated birth control as the cure for these social ills. His image as a radical social reformer did much to attract the attention of the press and the Young Socialists with whom he sympathized. But his rejection of marx and marxism limited his popularity.

Wicksell was not so much an innovator as a synthesizer. His integration and refinement of existing microeconomic theories helped earn Wicksell recognition as the “economists’ economist.” In his 1893 book, Value, Capital, and Rent, Wicksell analyzed and praised the Austrian theory of capital as elaborated by Eugen von Böhm-Bawerk. In the first volume of his Lectures on Political Economy Wicksell concluded that Böhm-Bawerk’s idea of roundaboutness did not make sense, and agreed with Irving Fisher that waiting was a sufficient explanation for interest rates.

Wicksell also laid out marginal productivity theory, the theory that the payment to each factor of production equals that factor’s marginal product. Economists Philip Wicksteed, Enrico Barone, and John Bates Clark had already elaborated this theory, but Wicksell’s exposition of it was superior. Wicksell also emphasized that an efficient allocation of resources is not necessarily just, because the allocation depends on the preexisting distribution of income, and nothing guarantees that this preexisting distribution is just.

Wicksell is best known for Interest and Prices, his contribution to the fledgling field now called macroeconomics. In this book and in his 1906 Lectures in Political Economy, volume 2, Wicksell sketched out his version of the quantity theory of money (monetarism). The standard view of the quantity theory before Wicksell was that increases in the money supply have a direct effect on prices—more money chasing the same amount of goods. Wicksell focused on the indirect effect. In elaborating this effect, Wicksell distinguished between the real rate of return on new capital (Wicksell called this the “natural rate of interest”) and the actual market rate of interest. He argued that if the banks reduced the rate of interest below the real rate of return on capital, the amount of loan capital demanded would increase and the amount of saving supplied would fall. Investment, which equaled saving before the interest rate fell, would exceed saving at the lower rate. The increase in investment would increase overall spending, thus driving up prices. This “cumulative process” of inflation would stop only when the banks’ reserves had fallen to their legal or desired limit, whichever was higher.

In laying out this theory, Wicksell began the conversion of the old quantity theory into a full-blown theory of prices. The Stockholm school, of which Wicksell was the father figure, ran with this insight and developed its own version of macroeconomics. In some ways this version resembled later Keynesian economics. Among the young Swedish economists who learned from Wicksell were Bertil Ohlin, Gunnar Myrdal, and Dag Hammarskjöld, later secretary general of the United Nations.

For much of his adult life, Wicksell depended on several small inheritances, grants, and the meager income earned through public lectures and publications. Not until 1886, when he was awarded a major grant, did he begin to pursue economics seriously. With financial support secured, Wicksell traveled to universities in London, Strasbourg, Vienna, Berlin, and Paris. By 1890 Wicksell had returned to Stockholm, but being “too notorious” and unqualified to teach—he held degrees in mathematics, but economics instructors were then required to have formal degrees in law and economics—he returned to freelance writing and lecturing.

In 1900, when Wicksell was forty-eight years old, he was granted his first teaching position at the University of Lund, which he retained until his retirement in 1916. His quirky habits, friendly demeanor, and willingness to actively defend his beliefs earned him respect and popularity among his students. Throughout his lifetime Wicksell never lost his penchant for radicalism. He forfeited a professorship by refusing to sign the application with the conventional “Your Majesty’s most obedient servant.” In 1910 he was jailed for two months by the Swedish government for a satirical public lecture he delivered on the Immaculate Conception. In spite of his disdain for ceremony and fanfare, his common-law widow consented to an extravagant funeral upon his death at age seventy-four.

Class Materials for Lecture 16 on Thursday 3/1/12

Brief Outline of Topics Covered in Lecture 16:

• Neoclassical Welfare Economics - Edgeworth Ch. 14
• The Neoclassical School ‑ Marshall and Clark Ch. 11
• The Neoclassical School ‑ Walras (pgs. 265-283) [if we get this far]

In particular:

• von Wieser (class notes)
• Clark (pgs. 302-310)
• Edgeworth (pgs. 375-381)
• Marshall (pgs. 287-302)
• Walras (pgs. 264-283)

Menger


John Bates Clark


Francis Ysidro Edgeworth


Alfred Marshall

 

Additional Reading

Alfred Marshall: ...While Marshall took economics to a more mathematically rigorous level, he did not want mathematics to overshadow economics and thus make economics irrelevant to the layman. Accordingly, Marshall tailored the text of his books to laymen and put the mathematical content in the footnotes and appendices for the professionals. In a letter to A. L. Bowley, he laid out the following system:

(1) Use mathematics as shorthand language, rather than as an engine of inquiry.
(2) Keep to them till you have done.
(3) Translate into English.
(4) Then illustrate by examples that are important in real life
(5) Burn the mathematics.
(6) If you can’t succeed in 4, burn 3. This I do often."^[3]

Class Materials for Lecture 15 on Tuesday 2/28/12

Brief Outline of Topics Covered in Lecture 15:

• Finish Marxian Socialism Ch. 9
• The Marginalist School ‑ Jevons and Menger Ch. 10 [cont.]
• The Neoclassical School ‑ Marshall and Clark Ch. 11
• Neoclassical Welfare Economics - Edgeworth Ch. 14

Note: The order of topics presented in class in this and coming lectures will be

• Jevons (pgs. 247-256)
• Menger (pgs. 256-264)
• von Wieser (class notes)
• Clark (pgs. 302-310)
• Edgeworth (pgs. 375-381)
• Marshall (pgs. 287-302)
• Walras (pgs. 264-283)

Putting the readings back in order, this becomes: pgs. 247-283, 287-310, and 375-381.

Jevons

Additional Reading

Walter Bagehot responds negatively to William Stanley Jevon's proposal to construct a price index based upon household consumption, and then use the index to adjust contracts to reflect variations in the purchasing power of money. This is from an 1875 edition of The Economist:

A New Standard of Value, by Walter Bagehot, The Economist, November 20, 1875, reprinted in the Economic Journal, volume 2 (1892): Professor Jevons, of Manchester -- so well known in the economical and statistical world by his researches on coal -- has written an excellent treatise on 'Money and the Mechanism of Exchange', which we strongly recommend to our readers. It is extremely clear, brief without being dry, and contains a good deal of very interesting information. And we may add that it is written in a style of scientific modesty rare in currency books. Mr Jevons is perpetually aware that the subject abounds in questions of nicety and difficulty, on which he is quite ready to admit that he may be wrong. It would be a happy thing if persons far less competent than Mr Jevons to write on the subject, but who incessantly do so, could be brought to that admission.

On one point, however, we are at issue with Mr Jevons: he has far more hope from economical science than we have. He thinks that it can point out to mankind a far better theoretical standard of value than gold or silver, and believes that, though it is encumbered with some difficulties, probably the new plan would on the whole, when we got used to it, work better than our present one. But for ourselves we much fear that political economy has no such boon to confer on mankind, and that we must adhere to one or other of the precious metals as a standard of value, like our forefathers. Mr Jevons shall explain his fundamental idea in his own words.

Homework 6

Economics 493
Winter 2012
Homework 6
Due Thurssday, March 1

1. According to Marx, why does profit fall over time?

2. Use the numerical example developed in class to examine what happens to the rate of exploitation and profit if the length of the working day is extended to 15 hours.

3. (a) What was Jevons' main contribution to the theory of exchange? (b) What is the water-diamond paradox? How does Jevons solve it?

4. Compare and contrast Menger's and Jevon's views on total and marginal utility.

5. Explain Clark's marginal productivity theory and how it was used to counter Marx's claim that labor is exploited under capitalism.

6. (a) What was Edgeworth's main contribution to utility theory? Explain. (b) Explain the contributions made by Edgeworth to production theory.

The Pirates' Code

This is the article I mentioned in class:

The Pirates’ Code, by James Surowiecki, The New Yorker: ...While pirates were certainly cruel and violent criminals, pirate ships were hardly the floating tyrannies of popular imagination. As a fascinating new paper by Peter Leeson, an economist at George Mason University, and “The Republic of Pirates,” a new book by Colin Woodard, make clear, pirate ships limited the power of captains and guaranteed crew members a say in the ship’s affairs. The surprising thing is that, ... pirates were, in Leeson’s words, among “the most sophisticated and successful criminal organizations in history.”

Leeson is fascinated by pirates because they flourished outside ... the law. They could not count on ... authorities to insure that people would live up to promises or obey rules. Unlike the Mafia, pirates were not bound by ethnic or family ties; crews were ... remarkably diverse... Nor were they held together primarily by violence... [P]irate ships were governed by ... simple constitutions that, in greater or lesser detail, laid out the rights and duties of crewmen, rules for the handling of disputes, and incentive and insurance payments to insure that crewmen would act bravely in battle. ... The Pirates’ Code ... was not, in that sense, a myth, although in effect each ship had its own code.

But rules alone did not suffice. Pirates also needed to limit the risk that their leaders would put individual interests ahead of the interests of the ship... Some pirates had turned to buccaneering after fleeing naval and merchant vessels, where the captain was essentially a dictator... Royal Navy and merchant captains guaranteed themselves full rations while their men went hungry, beat crew members at their whim, and treated dissent as mutinous. So pirates were familiar with the perils of autocracy.

As a result, Leeson argues, pirate ships developed ... democracies. First, pirates ... divided and limited power. Captains had total authority during battle, when debate and disagreement were ... inefficient and dangerous. Outside of battle, the quartermaster ... was in charge—responsible for food rations, discipline, and the allocation of plunder. On most ships, the distribution of booty was set down in writing, and it was relatively equal; pirate captains often received only twice as many shares as crewmen. ... The most powerful check on captains and quartermasters was that ... the crew elected them and could depose them. And when questions arose about the rules..., interpretation was left not to the captain but to a jury of crewmen. ...

Interestingly, ... most corporations since the mid-nineteenth century have behaved more like the Royal Navy, with C.E.O.s who have close to unlimited power and employees who have no say in ... the organization...

This model of C.E.O. leadership is increasingly being questioned, with a greater emphasis being placed, at least rhetorically, on the need for executives to be more responsive to employees and on the value of dividing authority (although no one is seriously considering letting ordinary employees elect the boss). ... You can take this comparison only so far... But it may be only a matter of time before someone publishes “The Management Lessons of Captain Kidd.” I’d read it.

Class Materials for Lecture 14 on Thursday 2/23/12

Brief Outline of Topics Covered in Lecture 12:

• The Rise of Socialist Thought and Marxian Socialism (Ch. 9) [cont.]
• The Marginalist School (ch. 10) [we probably won't get this far]

Younger Karl Marx

Additional Reading

Conditions around the time Marx was writing:

Dickens' London: ...Victorian London was the largest, most spectacular city in the world. While Britain was experiencing the Industrial Revolution, its capital was both reaping the benefits and suffering the consequences. In 1800 the population of London was around a million souls. That number would swell to 4.5 million by 1880. While fashionable areas like Regent and Oxford streets were growing in the west, new docks supporting the city's place as the world's trade center were being built in the east. Perhaps the biggest impact on the growth of London was the coming of the railroad in the 1830s which displaced thousands and accelerated the expansion of the city.

The price of this explosive growth and domination of world trade was untold squalor and filth. In his excellent biography, Dickens, Peter Ackroyd notes that "If a late twentieth-century person were suddenly to find himself in a tavern or house of the period, he would be literally sick - sick with the smells, sick with the food, sick with the atmosphere around him".

Imagine yourself in the London of the early 19th century. The homes of the upper and middle class exist in close proximity to areas of unbelievable poverty and filth. Rich and poor alike are thrown together in the crowded city streets. Street sweepers attempt to keep the streets clean of manure, the result of thousands of horse-drawn vehicles. The city's thousands of chimney pots are belching coal smoke, resulting in soot which seems to settle everywhere. In many parts of the city raw sewage flows in gutters that empty into the Thames. Street vendors hawking their wares add to the cacophony of street noises. Pick-pockets, prostitutes, drunks, beggars, and vagabonds of every description add to the colorful multitude.

Personal cleanliness is not a big priority, nor is clean laundry. In close, crowded rooms the smell of unwashed bodies is stifling. It is unbearably hot by the fire, numbingly cold away from it.

At night the major streets are lit with feeble gas lamps. Side and secondary streets may not be lit at all and link bearers are hired to guide the traveler to his destination. Inside, a candle or oil lamp struggles against the darkness and blacken the ceilings.

Until the second half of the 19th century London residents were still drinking water from the very same portions of the Thames that the open sewers were discharging into. Several outbreaks of Cholera in the mid 19th century, along with The Great Stink of 1858, when the stench of the Thames caused Parliament to recess, brought a cry for action. The link between drinking water tainted with sewage and the incidence of disease slowly dawned on the Victorians. Dr John Snow proved that all victims in a Soho area cholera outbreak drew water from the same Broad Street pump.

Sir Joseph Bazalgette, chief engineer of the new Metropolitan Board of Works (1855), put into effect a plan, completed in 1875, which finally provided adequate sewers to serve the city. In addition, laws were put in effect which prevented companies supplying drinking water from drawing water from the most heavily tainted parts of the Thames and required them to provide some type of filtration.

After the Stage Carriages Act of 1832 the hackney cab was gradually replaced by the omnibus as a means of moving about the city. By 1900 3000 horse-drawn buses were carrying 500 million passengers a year. A traffic count in Cheapside and London Bridge in 1850 showed a thousand vehicles an hour passing through these areas during the day. All of this added up to an incredible amount of manure which had to be removed from the streets. In wet weather straw was scattered in walkways, storefronts, and in carriages to try to soak up the mud and wet.

Cattle were driven through the streets until the mid 19th century. In an article for Household Words in March 1851 Dickens, with characteristic sarcasm, describes the environmental impact of having live cattle markets and slaughterhouses in the city:

"In half a quarter of a mile`s length of Whitechapel, at one time, there shall be six hundred newly slaughtered oxen hanging up, and seven hundred sheep but, the more the merrier proof of prosperity. Hard by Snow Hill and Warwick Lane, you shall see the little children, inured to sights of brutality from their birth, trotting along the alleys, mingled with troops of horribly busy pigs, up to their ankles in blood but it makes the young rascals hardy. Into the imperfect sewers of this overgrown city, you shall have the immense mass of corruption, engendered by these practices, lazily thrown out of sight, to rise, in poisonous gases, into your house at night, when your sleeping children will most readily absorb them, and to find its languid way, at last, into the river that you drink".

In Oliver Twist, Dickens describes the scene as Oliver and Bill Sikes travel through the Smithfield live-cattle market on their way to burglarize the Maylie home:

It was market-morning. The ground was covered, nearly ankle-deep, with filth and mire; a thick steam, perpetually rising from the reeking bodies of the cattle, and mingling with the fog, which seemed to rest upon the chimney-tops, hung heavily above. All the pens in the centre of the large area, and as many temporary pens as could be crowded into the vacant space, were filled with sheep; tied up to posts by the gutter side were long Smithfield Market lines of beasts and oxen, three or four deep. Countrymen, butchers, drovers, hawkers, boys, thieves, idlers, and vagabonds of every low grade, were mingled together in a mass; the whistling of drovers, the barking dogs, the bellowing and plunging of the oxen, the bleating of sheep, the grunting and squeaking of pigs, the cries of hawkers, the shouts, oaths, and quarrelling on all sides; the ringing of bells and roar of voices, that issued from every public-house; the crowding, pushing, driving, beating, whooping and yelling; the hideous and discordant dim that resounded from every corner of the market; and the unwashed, unshaven, squalid, and dirty figures constantly running to and fro, and bursting in and out of the throng; rendered it a stunning and bewildering scene, which quite confounded the senses.

The Smithfield live-cattle market was finally moved out of the city to slaughterhouses in Islington in 1855. ...

The Victorian answer to dealing with the poor and indigent was the New Poor Law, enacted in 1834. Previously it had been the burden of the parishes to take care of the poor. The new law required parishes to band together and create regional workhouses where aid could be applied for. The workhouse was little more than a prison for the poor. Civil liberties were denied, families were separated, and human dignity was destroyed. The true poor often went to great lengths to avoid this relief.

With the turn of the century and Queen Victoria's death in 1901 the Victorian period came to a close. Many of the ills of the 19th century were remedied through education, technology and social reform...

Class Materials for Lecture 13 on Tuesday 2/21/12

Brief Outline of Topics Covered in Lecture 11:

• The Rise of Socialist Thought and Marxian Socialism (Ch. 9) [cont.]

Karl Marx
(1818-1883)

Additional Reading

Karl Marx (1818-1883) is best known not as a philosopher but as a revolutionary communist, whose works inspired the foundation of many communist regimes in the twentieth century. It is hard to think of many who have had as much influence in the creation of the modern world. Trained as a philosopher, Marx turned away from philosophy in his mid-twenties, towards economics and politics. However, in addition to his overtly philosophical early work, his later writings have many points of contact with contemporary philosophical debates, especially in the philosophy of history and the social sciences, and in moral and political philosophy. Historical materialism — Marx's theory of history — is centered around the idea that forms of society rise and fall as they further and then impede the development of human productive power. Marx sees the historical process as proceeding through a necessary series of modes of production, culminating in communism. Marx's economic analysis of capitalism is based on his version of the labour theory of value, and includes the analysis of capitalist profit as the extraction of surplus value from the exploited proletariat. The analysis of history and economics come together in Marx's prediction of the inevitable economic breakdown of capitalism, to be replaced by communism. However Marx refused to speculate in detail about the nature of communism, arguing that it would arise through historical processes, and was not the realisation of a pre-determined moral ideal.

Homework 5

Economics 493/593
Winter 2012
Homework 5
Due 2/23/2012

1. Discuss Nassau William Senior's views on the poor laws. What policies did he help to enact as a member of the Poor Law Inquiry Commission?

2. How do Mill's views on utility differ from Bentham's?

3. According to Mill, what are the three types of goods? Which type is the most common?

4. According to Marx, in the transition from slavery to feudalism to capitalism, how does each new system fool workers into working harder even though, in the end, they are no better off (i.e. still at subsistence)?

Class Materials for Lecture 12 on Thursday 2/16/12

Brief Outline of Topics Covered in Lecture 12:

• The Classical School - Mill (ch. 8)
• The Rise of Socialist Thought and Marxian Socialism (Ch. 9)

John Stuart Mill (1806-1873)

Additional Reading

John Stuart Mill was born on Rodney Street in the Pentonville area of London, the eldest son of the Scottish philosopher and historian James Mill and Harriet Burrow. John Stuart was educated by his father, with the advice and assistance of Jeremy Bentham and Francis Place. He was given an extremely rigorous upbringing, and was deliberately shielded from association with children his own age other than his siblings. His father, a follower of Bentham and an adherent of associationism, had as his explicit aim to create a genius intellect that would carry on the cause of utilitarianism and its implementation after he and Bentham had died. Mill was a notably precocious child; at the age of three he was taught Greek. By the age of eight he had read Aesop's Fables, Xenophon's Anabasis, and the whole of Herodotus, and was acquainted with Lucian, Diogenes Laërtius, Isocrates and six dialogues of Plato. He had also read a great deal of history in English and had been taught arithmetic.

At the age of eight he began learning Latin, Euclid, and algebra, and was appointed schoolmaster to the younger children of the family. His main reading was still history, but he went through all the commonly taught Latin and Greek authors and by the age of ten could read Plato and Demosthenes with ease. His father also thought that it was important for Mill to study and compose poetry. One of Mill's earliest poetry compositions was a continuation of the Iliad. In his spare time, he also enjoyed reading about natural sciences and popular novels, such as Don Quixote and Robinson Crusoe.

His father's History of India was published in 1818; immediately thereafter, about the age of twelve, Mill began a thorough study of the scholastic logic, at the same time reading Aristotle's logical treatises in the original language. In the following year he was introduced to political economy and studied Adam Smith and David Ricardo with his father, ultimately completing their classical economic view of factors of production. Mill's comptes rendus of his daily economy lessons helped his father in writing Elements of Political Economy, which became the leading textbook exposition of doctrinaire Ricardian economics. Ricardo, who was a close friend of his father, used to invite the young Mill to his house for a walk in order to talk about political economy.

At age fourteen, Mill stayed a year in France with the family of Sir Samuel Bentham, brother of Jeremy Bentham. The mountain scenery he saw led to a lifelong taste for mountain landscapes. The lively and friendly way of life of the French also left a deep impression on him. In Montpellier, he attended the winter courses on chemistry, zoology, logic of the Faculté des Sciences, as well as taking a course of the higher mathematics. While coming and going from France, he stayed in Paris for a few days in the house of the renowned economist Jean-Baptiste Say, a friend of Mill's father. There he met many leaders of the Liberal party, as well as other notable Parisians, including Henri Saint-Simon.

This intensive study however had injurious effects on Mill's mental health, and state of mind. At the age of twenty[4] he suffered a nervous breakdown. As explained in chapter V of his Autobiography, this was caused by the great physical and mental arduousness of his studies which had suppressed any feelings he might have developed normally in childhood. Nevertheless, this depression eventually began to dissipate, as he began to find solace in the Mémoires of Jean-François Marmontel and the poetry of William Wordsworth.

Mill refused to study at Oxford University or Cambridge University, because he refused to take Anglican orders from the "white devil".[5] Instead he followed his father to work for the East India Company until 1858.

In 1851, Mill married Harriet Taylor after 21 years of an intimate friendship. Taylor was married when they met, and their relationship was close but generally believed to be chaste during the years before her first husband died. Brilliant in her own right, Taylor was a significant influence on Mill's work and ideas during both friendship and marriage. His relationship with Harriet Taylor reinforced Mill's advocacy of women's rights. He cites her influence in his final revision of On Liberty, which was published shortly after her death, and she appears to be obliquely referenced in The Subjection of Women. Taylor died in 1858 after developing severe lung congestion, only seven years into their marriage.

Between the years 1865-1868 Mill served as Lord Rector of the University of St. Andrews. During the same period, 1865-8, he was a Member of Parliament for City and Westminster[6], and was often associated with the Liberal Party. During his time as an MP, Mill advocated easing the burdens on Ireland, and in 1869 became the first person in Parliament to call for women to be given the right to vote. Mill became a strong advocate of women's rights and such social reforms as labor unions and farm cooperatives. In Considerations on Representative Government, Mill called for various reforms of Parliament and voting, especially proportional representation, the Single Transferable Vote, and the extension of suffrage. He was godfather to Bertrand Russell.

He died in Avignon, France, in 1873, where he is buried alongside his wife.

Class Materials for Lecture 11 on Tuesday 2/14/12

Midterm today

Class Materials for Lecture 10 on Thursday 2/9/12

Brief Outline of Topics Covered in Lecture 10:

• Answer questions about material for midterm
• If questions end, continue the Classical School - Mill (ch. 8)
• The Rise of Socialist Thought and Marxian Socialism (Ch. 9)

Review Questions for the Midterm

Introduction

1. Why does the book choose to begin the study of the evolution of economic thought around the year 1500?

2.  What factors were important in the transition from feudalism to capitalism? Discuss each factor.

Mercantilism

1.  Discuss the main features and policies associated with mercantilism.

2.  Why did the mercantilists focus on exchange as the source of wealth? What was the role of the government under mercantilism?

3.  Why did mercantilists try to achieve full employment?

4.  What was Thomas Mun's major contribution to mercantilist ideas?

5.  Discuss the ideas and contributions of Jean Babtiste Colbert.

6.  Discuss the ideas and contributions of Sir William Petty.

Physiocrats

 1. Who were the Physiocrats? What policies did they advocate, and what problems did their policies address?

2.  Discuss the ideas and contributions of Francois Quesnay. Explain Quesnay's Tableau Economique. Why is the table important in the history of economic thought?

3.  Discuss the ideas and contributions of Anne Robert Turgot. Why was Turgot dismissed from his duties as finance minister in 1776?

Capitalist Precursors

1.  Discuss the ideas and contributions of Richard Cantillon

2.  Discuss the ideas and contributions of David Hume.

3.  What is the price-specie flow mechanism and why is it important? 

Adam Smith

 1. What is the main message of Adam Smith's book The Theory of Moral Sentiments?

2.  According to Adam Smith, what are the four stages of economic and social development? What are the characteristics of each stage?

3.  What is the role of the state according to Adam Smith? What makes for good taxes?

4.  What reasons did Adam Smith give for increases in productivity brought about by the division of labor? What is the most fundamental division of labor? How does productive labor differ from unproductive labor, and why did he make this distinction? Ultimately, what is responsible for the wealth of nations?

5.  Why does Adam Smith believe in free international trade? Are tariffs ever acceptable?

6.  According to Adam Smith, what is the difference between the market price and the natural price? Why is this distinction important?

7.  Why did Adam Smith adopt an "adding up" theory of value for economies that had advanced past the primitive stage?

8. According to Smith, why do wages differ across occupations? What was he trying to explain by making this distinction?

9. What is the wages fund doctrine?

10.  What did Smith think would happen to the rate of profit over time? What reasons did he give for his conclusion?

Robert Malthus

1.  Explain Malthus' population theory. What policy implications did Malthus draw from this analysis?

2.  Explain Malthus's theory of gluts. What policy conclusions did he draw from the analysis?

David Ricardo

1.  Explain Ricardo's theory of rent and the law of diminishing returns. What policy conclusions did he draw from this analysis?

2.  Explain Ricardo's theory of comparative advantage.

3. Why did Ricardo focus on distribution rather than production?

4.  Explain Ricardo's theory of distribution. Also explain why Ricardo believed that rent and profit are inversely related, and that that profit and wages are inversely related. That is, explain and show graphically that, as population grows and the demand for corn rises, rents and wages go up, while profit falls.

5. Why does Ricardo believe the economy will end up in a stationary (no growth) long-run steady state?

Jeremy Bentham

1.  How does hedonism differ from utilitarianism?

2.  How did Bentham's utilitarianism lead him to egalitarian reform proposals? Why didn't he advocate complete equality of income?

J.B. Say

1.  According to J.B. Say, what was the fourth factor of production? How did the addition of this fourth factor of production this remove potential sources of class conflict from classical theory?

2. What is Say's law? What are the implications of Say's law?

Class Materials for Lecture 9 on Tuesday 2/7/12

Brief Outline of Topics Covered in Lecture 9:

• The Classical School - Bentham, Say, Senior, and Mill (ch. 6) [cont.]

Jean-Baptiste Say (1767 – 1832)

Nassau William Senior (1790 - 1864)

Additional Reading

This was posted once before in the section on Malthus:

Jean-Baptiste Say (1767-1832) on Say's Law and the Impossibility of Gluts

"It is worth while to remark, that a product is no sooner created, than it, from that instance, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should vanish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus, the mere circumstance of the creation of one product immediately opens a vent for other products ..."

"But it may be asked, if this be so, how does it happen, that there is at times so great a glut of commodities in the market and so much difficulty in finding a vent for them? Why cannot one of these 11 superabundant commodities be exchanged for another? I answer that the glut of a particular commodity arises from its having outrun the total demand for it in one or two ways; either because it has been produced in excessive abundance, or because the production of other commodities has fallen short."

Homework 4

Economics 493/593
Winter 2012
Homework 4
Due Thursday 2/9/2010

1. Why did Ricardo focus on distribution rather than production?

2. Explain Ricardo's theory of rent and the law of diminishing returns. What policy conclusions did he draw from this analysis?

3. Show graphically that, as population grows and the demand for corn rises, rents and wages go up, while profit falls.

4. What is utilitarianism? How did Bentham's utilitarianism lead him to egalitarian reform proposals? Why didn't he advocate complete equality of income?

Class Materials for Lecture 8 on Thursday 2/2/12

Brief Outline of Topics Covered in Lecture 8:

• The Classical School - David Ricardo (ch. 5) [cont.]
• The Classical School - Bentham, Say, Senior, and Mill (ch. 6)

Jeremy Bentham Auto-Icon

Jeremy Bentham: As requested in his will, his body was preserved and stored in a wooden cabinet, termed his "Auto-icon". Originally kept by his disciple Dr. Southwood Smith, it was acquired by University College London in 1850. The Auto-Icon is kept on public display at the end of the South Cloisters in the main building of the College. For the 100th and 150th anniversaries of the college, the Auto-Icon was brought to the meeting of the College Council, where he was listed as "present but not voting". Tradition holds that if the council's vote on any motion is tied, the auto-icon always breaks the tie by voting in favor of the motion.

The Auto-Icon has always had a wax head, as Bentham's head was badly damaged in the preservation process. The real head was displayed in the same case for many years, but became the target of repeated student pranks including being stolen on more than one occasion. It is now locked away securely

Additional Reading

Utilitarianism:

Utilitarianism is the idea that the moral worth of an action is determined solely by its utility in providing happiness or pleasure as summed among all sentient beings. It is thus a form of consequentialism, meaning that the moral worth of an action is determined by its outcome.

Utilitarianism is often described by the phrase "the greatest good for the greatest number of sentient beings", and is also known as "the greatest happiness principle". Utility, the good to be maximized, has been defined by various thinkers as happiness or pleasure (versus suffering or pain), although preference utilitarians define it as the satisfaction of preferences. It may be described as a life stance, with happiness or pleasure being of ultimate importance. ...

The origins of utilitarianism are often traced as far back as the Greek philosopher Epicurus, but, as a specific school of thought, it is generally credited to Jeremy Bentham.[1] Bentham found pain and pleasure to be the only intrinsic values in the world: "nature has placed mankind under the governance of two sovereign masters, pain and pleasure."[2] From this, he derived the rule of utility: the good is whatever brings the greatest happiness to the greatest number of people.

Bentham's foremost proponent was James Mill, a significant philosopher in his day and the father of John Stuart Mill. The younger Mill was educated according to Bentham's principles, including transcribing and summarizing much of his father's work while still in his teens.[3]

In his famous work, Utilitarianism, the younger Mill argues that cultural, intellectual and spiritual pleasures are of greater value than mere physical pleasure because the former would be valued higher than the latter by competent judges. A competent judge, according to Mill, is anyone who has experienced both the lower pleasures and the higher. His famous quote found in Utilitarianism (book) was, "it is better to be a human dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied"[4] demonstrating Mill's distinction between higher and lower pleasures. He justified this distinction by the thought that "few human creatures would consent to be changed into any of the lower animals, for a promise of the fullest allowance of a beast's pleasures."[4]

Like Bentham's formulation, Mill's utilitarianism deals with pleasure and happiness. However John Stuart Mill made a clear distinction between happiness and pleasure; and made it evident that Weak Rule Utilitarianism was focused on maximising happiness rather than pleasure; for the naturalistic fallacy made it clear that what one desires and what is good are not always the same thing. For example a pleasure/desire may be to bully a lonely child, which may produce pleasure, however happiness comes from following virtues rather than desires.

The classic utilitarianism of Bentham and Mill influenced many other philosophers as well as the development of the broader concept of consequentialism. ...

[see also Criticisms and Defense]

Homework 3

Homework 3
Due Thursday 2/2

1.  What is the role of the state according to Adam Smith? What makes for good taxes?

2. According to Adam Smith, what is the difference between the market price and the natural price? Why is this distinction important?

3. According to Smith, why do wages differ across occupations? What was he trying to explain by making this distinction?

4. Explain Malthus's theory of gluts. What policy conclusions did Malthus draw from the analysis?

Class Materials for Lecture 6 on Thursday 1/26/12

Brief Outline of Topics Covered in Lecture 6:

• The Classical School - Adam Smith (ch. 3) [finish]
• The Classical School - Thomas Malthus (ch. 4) 
• The Classical School - David Ricardo (ch. 5) [beginning of chapter.]

Additional Reading

The Theory of Moral Sentiments (1759)



Malthus

The Peterloo Massacre, 1819: The French Revolution postponed in England many reforms which had been rendered necessary by rapid industrial progress. Radicalism was associated in the public mind with a French origin, and that killed it politically. After Waterloo the tide turned and agitators gained a hearing. The landed interests wished to maintain the late war prices, and the artisan population desired cheap bread. Hence discontent, oratory, and riots which resulted in the loss of life. The most celebrated disturbance of these years is the "Peterloo Massacre" of 1819. On August 16th a mass meeting was arranged by the Manchester radicals to hear Henry Hunt, a speaker who advocated annual parliaments, universal suffrage, and the ballot. A crowd gathered in St. Peter's Fields, and trouble arose between it and the Lancashire militia who were present on the plea of preserving order. The troops charged and killed several persons, to the intense indignation of radical sympathizers in every part of the island.

The adjournment of the preceding meeting, the considerable interval of preparation which had been allowed; a vague feeling perhaps, that such assemblages would not much longer be permitted,---all conspired to render the concourse great beyond all former example. A little before noon on the 16th of August, the first body of reformers began to arrive on the scene of action, which was a piece of ground called St. Peter's Field, adjoining a church of that name in the town of Manchester. These persons bore two banners, surmounted with caps of liberty, and bearing the inscriptions: "No Corn Laws," "Annual Parliaments," "Universal Suffrage," "Vote By Ballot." Some of these flags, after being paraded round the field, were planted in the cart on which the speakers stood; but others remained in different parts of the crowd. Numerous large bodies of reformers continued to arrive from the towns in the neighborhood of Manchester till about one o'clock, all preceded by flags, and many of them in regular marching order, five deep. Two clubs of female reformers advanced, one of them numbering more than 150 members, and bearing a white silk banner. One body of reformers timed their steps to the sound of a bugle with much of a disciplined air; another had assumed to itself the motto of the illustrious Wallace, "God armeth the Patriot." A band of special constables assumed a position on the field without resistance. The congregated multitude now amounted to a number roundly computed at 80,000, and the arrival of the hero of the day was impatiently expected.

At length Mr. Hunt made his appearance, and after a rapturous greeting, was invited to preside; he signified his assent, and mounting a scaffolding, began to harangue his admirers. He had not proceeded far, when the appearance of the yeomanry cavalry advancing toward the area in a brisk trot, exciting a panic in the outskirts of the meeting. They entered the inclosure, and after pausing a moment to recover their disordered ranks, and breathe their horses, they drew their swords, and brandished them fiercely in the air. The multitude, by the direction of their leaders, gave three cheers, to show that they were undaunted by this intrusion, and the orator had just resumed his speech to assure the people that this was only a trick to disturb the meeting, and to exhort them to stand firm, when the cavalry dashed into the crowd, making for the cart on which the speakers were placed. The multitude made no resistance, they fell back on all sides.

The commanding officer then approaching Mr. Hunt, and brandishing his sword, told him that he was his prisoner. Mr. Hunt, after enjoining the people to tranquility, said, that he would readily surrender to any civil officer on showing his warrant, and Mr. Nadin, the principal police officer, received him in charge. Another person, named Johnson, was likewise apprehended, and a few of the mob; some others against whom there were warrants, escaped in the crowd.

A cry now arose among the military of "Have at their flags!" and they dashed down not only those in the cart, but the others dispersed in the field; cutting to right and left to get at them. The people began running in all directions; and from this moment the yeomanry lost all command of temper: numbers were trampled under the feet of men and horses; many, both men and women, were cut down by sabers; several, and a peace officer and a female in the number, slain on the spot. The whole number of persons injured amounted to between three and four hundred. The populace threw a few stones and brick bats in their retreat; but in less than ten minutes the ground was entirely cleared of its former occupants, and filled by various bodies of military, both horse and foot. Mr. Hunt was led to prison, not without incurring considerable danger, and some injury on his way from the swords of the yeomanry and the bludgeons of police officers; the broken staves of two of his banners were carried in mock procession before him. The magistrates directed him to be locked up in a solitary cell, and the other prisoners were confined with the same precaution. The town was brought into a tolerably quiet state before night, military patrols being stationed at the end of almost every street.

---

Source

From: Charles W. Colby, ed., Selections from the Sources of English History, B.C. 55 - A.D. 1832 (London: Longmans, Green, 1920), pp. 298-300.

Class Materials for Lecture 5 on Tuesday 1/24/12

Brief Outline of Topics Covered in Lecture 5:

• The Classical School - Adam Smith (ch. 3) [cont.]
• The Classical School - Thomas Malthus (ch. 4) [unlikely we'll get this far]

Louis the Pious: Duties of the Coloni, 817

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C.13. As to the coloni, they either serve as serfs of the Church or make some kind of fixed payment: this is the agrarian tax according to the opinion of the steward. The steward sees to it that each gives according to what he has; out of thirty muids he gives three muids, and each pays pascuarium according to the custom of the district. He is to plough, sow, enclose, harvest, haul, and put away the crops from the regular enclosures---which are four ten-foot measuring rods in width and forty in length. He is to enclose, reap, gather, and put away one arpent in meadow. Every colonus ought to collect and put away corn to the value of a triens for seed. He is to plant, enclose, dig up, extend, prune, and collect the harvest of the vineyards. They each pay ten bundles of flax. Four hens they must pay also. They give palfreys or go where they are ordered. They do carriage service with a cart up to fifty leagues; to go further is not expected. They are assigned to the demesne houses, haylofts, farms; they have a reasonable amount of land for earning the tax, and when necessary they pay it in a lump sum.

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Source: From: J. P. Migne, Patrologiae Cursus Completus, (Paris, 1862), Vol. XCVII, p. 412, reprinted in Roy C. Cave & Herbert H. Coulson, A Source Book for Medieval Economic History, (New York: The Bruce Publishing Co., 1936; reprint ed., New York: Biblo & Tannen, 1965), p. 28.

The Church Fathers On Usury, 400-444

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The Church Fathers had already taken a stand on the question of usury in the fifth century, but loans on credit were not widespread transactions during the barbarian conquest.

St. Jerome on Usury, 400: If you gave to a prosperous person you should not have done so: but if (even so) you gave it as to a needy person, why should you demand more on the score of his being prosperous? Some lenders are wont to take small gifts of dilferent value, not realizing that whatever is received over and above what was given is called usury and superabundance. They ought not to take more, however much it be, than was originally given by them.

Pope Leo the Great, 444: Neither do we think that it should be lightly passed over that some people, seized with the desire for filthy lucre, put out their money at usury in order to become rich thereby. And we have to complain of this not only with regard to those in clerical office but we likewise grieve to see that it holds true of lay people who wish to be called Christians. We decree that this should be severely punished in those found guilty, so that all occasion of sin may be washed away.

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Source: From: J. P. Migne, ed. Patrologiae Cursus Completus, (Paris, 1845), Vols. XXV, p. 177, CLXXXVII, p. 959, reprinted in Roy C. Cave & Herbert H. Coulson, A Source Book for Medieval Economic History, (Milwaukee: The Bruce Publishing Co., 1936; reprint ed., New York: Biblo & Tannen, 1965), pp. 170-171.

Homework 2

Economics 493/593
Winter 2012
Due on Thursday 1/26

Homework 2

1. Why is the Tableau Economique important in the history of economic thought?

2. Why was Turgot dismissed from his duties as finance minister in 1776?

3. What is the significance of the specie flow mechanism?

4. According to Adam Smith, what are the four stages of economic and social development? What are the characteristics of each stage?

Class Materials for Lecture 4 on Thursday 1/19/12

Brief Outline of Topics Covered in Lecture 4:

The Classical School - Forerunners (ch. 2)
The Classical School - Adam Smith (ch. 3)

Additional reading:

Adam Smith

Two famous quotes from the Wealth of Nations:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual value of society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

And:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Class Materials for Lecture 3 on Tuesday 1/17/12

Brief Outline of Topics Covered in Lecture 3:

The Physiocrats (ch. 2)
The Classical School - Forerunners (ch. 2)
The Classical School - Adam Smith (ch. 3)  [first part of chapter if we get this far]

Additional reading:

François Quesnay, 1694-1774

The humbly-born François Quesnay trained himself in medicine, rising to become a physician in Louis XV's court and the leader of a sect of Enlightenment thinkers known as the Physiocrats or the économistes. The working-class boy who could not read until he was 11 was eventually elected to the Academy of Sciences and hailed as the "Confucius of Europe", the "modern Socrates", by his gentlemen-disciples.

Born in Méré to a family of laborers, Quesnay was orphaned at thirteen.  He learned to read from a household medical companion and quickly acquired a voracious appetite for more books and more learning. After a brief apprenticeship, some schooling at Saint-Côme, and marrying a Parisian grocer's daughter (a huge step up in social status), Quesnay set himself up as a country barber-surgeon in Mantes.  His (rapid) self-education and skills shone through and, recommendation upon recommendation, he gradually climbed up the greasy pole, entering into the service of local aristocrats.  This gave him some time to do more reading, studying and writing.   

Quesnay's numerous tracts on surgery cemented his reputation.  He was particularly keen on elevating the status of surgery into a medical science (much to the medical establishment's horror).  The King's edict of 1743 separating surgeons from barbers and the later creation of a royal college of surgeons was partly his doing.   

In 1749, on the strength of a strong recommendation, Quesnay became  the personal physician of the King Louis XV's mistress, the Madame de Pompadour. Quesnay settled in Versailles, finally entering the highest circle of power.  He was elected to the Academié des sciences in 1751 and fell in with the philosophes, who curiously sought out the little country surgeon who had so bravely challenged the great doctors. 

Quesnay's interest in economics arose in 1756, where, hoping to draw on his country background, he was asked to contribute several articles on farming to the Encylopèdie of Diderot and d'Alembert.  Quesnay delved into the works  of the Maréchal de Vauban, Pierre de Boisguilbert and Richard Cantillon and, mixing all these ingredients together, Quesnay gradually came up with his famous economic theory. 

In 1757, he met the Marquis de Mirabeau, his first convert.  He was followed by Mercier de la Riviere and DuPont de Nemours and several others.  In 1758, Quesnay wrote his Tableau Économique -- renowned for its famous "zig-zag" depiction of income flows between economic sectors-- to explain his doctrine.  It became the founding document of the Physiocratic sect -- and the ancestor of the multisectoral input-output systems of Marx , Sraffa and Leontief and modern general equilibrium theory. (See our analysis of Quesnay's Tableau).   

Quesnay began with the axiom that agriculture is the only source of produit net (net product, or surplus of output above cost).  He believed that manufacturing and commerce were "sterile" as (in his view), the value of their output was equal to the value of their inputs.  Only land, Quesnay reasoned, produced more than went into it. The wealth of a nation, Quesnay argued, lies in the size of its net product.   

Quesnay opposed the mercantilist doctrines of Colbert, which still held in the French court, believing that they concentrated too much on propping up industry and commerce rather than agriculture.  Influenced by Vincent de Gournay, an advocate of laissez-faire, Quesnay wished to see many of the Medieval rules governing agricultural production lifted, permitting the economy to find its "natural state".   The natural state of the economy was conceived as the balanced circular flow of income between economic sectors and thus social classes which maximized the net product.  In these concepts, Quesnay saw analogies to the circulation of human blood and the homeostasis of a body. 

Quesnay was largely responsible for the distinction between the ordre naturel (nature's order) and the ordre positif (positive, i.e. human-idealized, order).  A good government, Quesnay argued, should follow a  laissez-faire policy so that the ordre naturel could emerge.

Quesnay went on to write numerous articles on economics in 1766-8 in the Journal de l'agriculture, du commerce et de finances and in the Ephémérides du Citoyen under pseudonyms like M.N., M.H., M.A., M. de Isles, etc. (sometimes having his alter-egos enjoin in journal debates with each other).  His 1766 formule article is perhaps his clearest presentation.  However, it was presentations, commentaries and elucidations upon Quesnay's system by Mirabeau (1760, 1763),  Mercier de la Riviere (1767) and DuPont de Nemours (1767) that gave Quesnay's ideas a more systematic feel.  Their worship of Quesnay knew no bounds.  

Homework 1

Economics 493/593
Winter 2012
Due on Thursday 1/19

Homework 1

1. List and briefly explain the major tenets of the mercantilist school.

2. Choose a country that is currently attempting to use economic policy to affect their trade balance and interpret those policies from a mercantilist perspective. In what way do the policies fit the mercantilist framework? In what way are they different?

3. What was Thomas Mun's most notable contribution to mercantilist thought? Explain.

4. Why did mercantilists try to achieve full employment?

Class Materials for Lecture 2 on Thursday 1/12/12

Brief Outline of Topics Covered in Lecture 2 (Wednesday 1/6):

Mercantilism (ch. 2) 
Physiocrats (ch. 2)

Jean-Baptiste Colbert

Francois Quesnay

Anne Robert Jacques Turgot

    Sir William Petty

Additional reading:

The Regulations of the Weavers' Gild of Stendal, 1233

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The weavers' law, granted by the city of Stendal, regulated the number of spindles to be used by a craftsman, membership of the gild, and the quality of the work.

The Consuls of Stendal . . . wish it to be known that we have taken the advice of our leading citizens and officials, and have passed the following decree:

1. If any of our burgesses should wish to practice the craft of weaving he ought to have one spindle or as many as two, and he should place them in his house, and for every spindle he should pay three solidi on entry into the fraternity. But if he should not pay the denarii within the said time and he afterwards cease to be of the craft he cannot regain it except with twenty-three solidi.

2. Whoever is not of the fraternity is altogether forbidden to make cloth.

3. But if any brother should make cloth against the institutions of the brethren, and of their decrees, which he ought on the advice of the consuls to observe, he will present to the consuls by way of emendation one talent for each offense or he will lose his craft for a year.

4. But if any one be caught with false cloth, his cloth will be burned publicly, and verily, the author of the crime will amend according to justice.

5. Should any foreigner wish to practice this craft he will first acquire citizenship and will afterwards enter into fraternity with the brethren with twenty-three solidi.

6. But if the heir of any craftsman cease to exercise his father's craft, he will pay three solidi on entrance.

7. Also we decree that every brother will dry his cloth where he can.

8. We concede also that if any one have this craft and cannot set up his implements by any chance, let him prepare and make his cloth on the spindle of another.

9. If any one should marry a widow whose husband was of the craft, he will enter the fraternity with three solidi.

10. And every one who would be of this craft will receive it in the presence of the consuls.

11. Whatever is collected in fines and received in entrance fees will be put to the use of the city, and be presented to the consuls....