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
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 Anglo-American Civil Wars (The Cousins
  Wars), victories of the Roundheads over the
  Cavaliers, of merchants and manufacturing and
  general liberty over feudal gentry and slavery --
  the protestant ethic
• Leads to the rise of a manufacturing class and
  the factory system is a result

7
Source Shepherd Wheel Sheffield, Yorkshire The
Grinding Workshop
8
Adam Smith

• 1723-1790

9
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
10
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.

11
Smith The Wealth of Nations, 1776

• The Division of Labor
• The Pursuit of Self Interest
• The Freedom of Trade
• The Invisible Hand
• Fundamental principles for economic growth
• Basis of classical liberal economics,
  neoclassical economics, and modern day neoliberal
  (neoconservative) economics
• (All otherwise collectively known as systems of
  free market or laissez faire economics )

12
The Division of LabourThe 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.

13
The Division of LabourThe Pin Factory
14
Self Interest

• "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."

15
The Freedom of Trade

• Against guild restrictions
• Against import taxes and tariffs
• For low taxes in general

16
The Invisible Hand

• Supply and demand
• Teach a parrot the terms "supply and demand" and
  you've got an economist. Thomas Carlyle

17
SmithThe Wealth of Nations, 1776

• Central policy issues
• Free trade, not protectionism
• Free association in trade (end guild protections)
• Lower taxation
• Factory system
• Public corporations (legal basis)
• Stock trading (permitted)
• Informs later discourses on economic and social
  freedoms, ie, the US Constitution, Bill or
  Rights, UN Declaration, etc

18
The Wealth of Nations Misunderstood?

• "The necessaries of life occasion the great
  expense of the poor. They find it difficult to
  get food, and the greater part of their little
  revenue is spent in getting it. The luxuries and
  vanities of life occasion the principal expense
  of the rich, and a magnificent house embellishes
  and sets off to the best advantage all the other
  luxuries and vanities which they possess. A tax
  upon house-rents, therefore, would in general
  fall heaviest upon the rich and in this sort of
  inequality there would not, perhaps, be anything
  very unreasonable. It is not very unreasonable
  that the rich should contribute to the public
  expense, not only in proportion to their revenue,
  but something more than in that proportion."