History of Economics

1
History of Economics

• (Safe) History of the economy
• (Dangerous) History of thinking about the economy
• (Keynes scribblers)

2
John Maynard Keynes

• "The ideas of economists and political
  philosophers, both when they are right and when
  they are wrong, are more powerful than is
  commonly understood. Indeed, the world is ruled
  by little else. Practical men, who believe
  themselves to be quite exempt from any
  intellectual influences, are usually the slaves
  of some defunct economist. Madmen in authority,
  who hear voices in the air, are distilling their
  frenzy from some academic scribbler of a few
  years back. I am sure that the power of vested
  interests is vastly exaggerated compared with the
  gradual encroachment of ideas. But, soon or
  late, it is ideas, not vested interests, which
  are dangerous for good or evil"

3
Nasty, brutish and short

• How does our present world economy come about?
• Why are things the way they are?
• Leviathan The basic building blocks of a
  non-Hobbesian world
• Industry
• Finance
• Freedom from brigandism, force, and fraud
• Limited liability corporations, partnerships and
  sole proprietorships
• Government and taxation, laws and regulation
• Employment
• Unions and other pressure groups

4
History of the Economy

• Gathering and hunting
• Farming - in caves, in villages, in towns, and
  then the advent of cities
• From barter to money, the key to trade
• From brigands to feudal lords
• Entrepreneurship - the farm becomes the firrrrm
• Mercantilism
• From family enterprises to group enterprises to
  corporations
• The firm, the market and the law (anti-trust and
  regulation)
• Government economies (capitalism vs. socialism)
• Welfare (Fabianism and social democracy)

5
History of Economics, Part 1

• A list of dead white men (deal with it!) the
  classicalists
• (this is a partial list)
• Aristotle
• Smith
• Malthus
• Rickardo
• Bentham and Mill
• (Marx and Engels)

6
History of Economics, Part 2 The 140 year war
socialism vs. capitalism

• Marx and Engels
• Lenin
• Stalin
• Pigou
• Keynes and FDR
• Fabianism
• Cold war
• Korea and Vietnam
• Detente
• European social democracy

• Smith
• Marshall
• Coase and company
• Friedman
• Reaganomics
• Corporate globalization
• The Clinton compromise

1944 Bretton Woods The great compromise
7
History of Economics, Part 3Ecological
Sustainability

• Conservationism
• Resource and environmental economics (growth
  implicit)
• Georgescu-Reogen (entropy)
• Daly (steady states)
• Bruntland (sustainable development)
• Agenda 21 and Kyoto (compromised sustainability)
• and were more or less up-to-date

8
The 18th Century

• Victory over brigandage -- the feudal settlement
• The Black Death and the slow death of feudal
  power
• Calvinism and the reformation
• Hobbes and Leviathan -- the idea of the
  Commonwealth
• The Civil War, victory of the Roundheads over the
  Cavaliers, of merchants and manufacturing over
  feudal gentry
• Leads to the rise of a manufacturing class and
  the factory system is a result

9
Source Shepherd Wheel Sheffield, Yorkshire The
Grinding Workshop
10
Adam Smith

• 1723-1790

11
Adam Smith, moral and political philosopher The
Theory of Moral Sentiments, 1759 An Inquiry into
the Nature and Causes of the Wealth of Nations,
1776
12
SmithThe Theory of Moral Sentiments, 1759

• Moral sensibility, or being a moral person is
  achieved through sympathy, but sympathy has to be
  well informed and clear-sighted
• And hence it is, that to feel much for others
  and little for ourselves, that to restrain our
  selfish, and to indulge our benevolent
  affections, constitutes the perfection of human
  nature and can alone produce among mankind that
  harmony of sentiments and passions in which
  consists their whole grace and propriety. As to
  love our neighbour as we love ourselves is the
  great law of Christianity, so it is the great
  precept of nature to love ourselves only as we
  love our neighbour, or what comes to the same
  thing, as our neighbour is capable of loving us.

13
SmithThe Wealth of Nations, 1776

• "Every individual is continually exerting himself
  to find out the most advantageous employment for
  whatever capital he can command. It is his own
  advantage, indeed, and not that of the society,
  which he has in view. But the study of his own
  advantage naturally, or rather necessarily, leads
  him to prefer that employment which is most
  advantageous to the society.
• Give me that which I want, and you shall have
  this which you want, is the meaning of every
  offer and it is in this manner that we obtain
  from one another the far greater part of those
  good offices which we stand in need of. 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 self-love, and never talk
  to them of our own necessities but of their
  advantages."

14
The Pin Factory

• not only the whole work is a peculiar trade,
  but it is divided into a number of branches, of
  which the greater part are likewise peculiar
  trades. One man draws out the wire another
  straights it a third cuts it a fourth points
  it a fifth grinds it at the top for receiving
  the head to make the head requires two or three
  distinct operations to put it on is a peculiar
  business to whiten the pins is another it is
  even a trade by itself to put them into the paper
  and the important business of making a pin is,
  in this manner, divided into about eighteen
  distinct operations, which, in some
  manufactories, are all performed by distinct
  hands, though in others the same man will
  sometimes perform two or three of them. I have
  seen a small manufactory of this kind, where ten
  men only were employed, and where some of them
  consequently performed two or three distinct
  operations. But though they were very poor, and
  therefore but indifferently accommodated with the
  necessary machinery, they could, when they
  exerted themselves, make among them about twelve
  pounds of pins in a day. There are in a pound
  upwards of four thousand pins of a middling size.
  Those ten persons, therefore, could make among
  them upwards of forty-eight thousand pins in a
  day.

15
SmithThe Wealth of Nations, 1776

• The invisible hand (of the market)
• Free trade, not protectionism
• Free association in trade
• Lower taxation
• Factory system
• Public corporations
• Stock trading
• Informs later discourses on economic and social
  freedoms, ie, the US Constitution, Bill or
  Rights, UN Declaration, etc