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| Capitalism in the 17th and 18th centuries | New goods are imported to Europe from overseas and new means of production - cottage industry and division of labor |
| 18th Century Financial Revolution | International trading companies, market for government bonds, consumer revolution (England) |
| 19th Century Capitalism | Industrial factories, limited liability, bureaucratic corporations, trade unions and labor parties |
| 20th Century Capitalism | Industrial factories, Rise of services |
| 21st Century Capitalism | Rise of Services |
| Capitalism the Term | Relatively new; originally a political slogan used by socialists to stigmatize the phenomenon; Far more neutral and scientific in the 20th century. |
| Marx, Engels & Capitalism | The enormous dynamic and creative, as well as destructive energy of capitalism is written up with more praise and more respect by these two men in the 1848 communist manifesto than probably by anyone since. I don't think anything has ever said so precisely and with such awed admiration how great capitalism is, how inventive, how innovative, how dynamic, how much force of creativity it unleashes. |
| Quote: Ecclesiastes 1:9 (New International Version, ©2010) | What has been will be again, what has been done will be done again; there is nothing new under the sun. |
| A. Bartlett Giamatti Quote | "There are many who lust for the simple answers of doctrine or decree. They are on the left and right. They are not confined to a single part of the society. They are terrorists of the mind." |
| Ron Paul NY Times Quote | If there is vindication here", Mr. Paul says, "it is for Austrian economic theory — an anti-Keynesian model that many mainstream economists consider radical and dismiss as magical thinking. The theory argues that markets operate properly only when they are unfettered by government regulation and intervention. It holds that the government should not have a central bank or dictate economic or monetary policy. Once the government begins any economic planning, such thinking goes, it ends up making all the economic decisions for its citizens, essentially enslaving them |
| Traitor to His Class Quote | "Wealth in the modern world does not come merely from individual effort," said Roosevelt in a message to Congress in 1935. "The individual does not create the product of his industry with his own hands: he utilizes the many processes and forces of mass production to meet the demands of a national and international market." Where wealth accrues honorably the people are always silent partners. |
| Karl Marx Quote | "Capital is money, capital is commodities. By virtue of it being value, it has acquired the occult ability to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs." |
| Capitalism Requirements | 1. Private property usually depends on existence of government 2. Exchange between legally free individuals opposed to serfdom slavery where labor is extracted by political superiority 3. Production and distribution of goods operate mainly through the market mechanism, rather than by custom or common decision of any sort. |
| Capitalism According to Sherman | an economic system based on production for markets in which the ownership of the means of production - land, buildings, and equipment - is in the hands of a small group of individuals called capitalists. |
| Capitalism Definition | AKA Economic Individualism: basic premise is that the pursuit of self-interest and the right to own private property are morally defensible and legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals are free to decide where to invest, what to produce or sell, and what prices to charge. There is no natural limit to the range of their efforts in terms of assets, sales, and profits; or the number of customers, employees, and investors; or whether they operate in local, regional, national, or international markets. |
| Capitalism Beliefs | Marxists - capitalism cannot solve social problems, unstable/doomed.; Keynesians doubt the invisible hand; Chicago Economists have great faith in capitalism; Austrians have perfect faith in capitalism |
| Resource Allocation in Capitalism | Markets allocate by price, price is a signal that provides information, |
| Technology to Sherman | Ways people produce goods or services |
| Economic Institutions to Sherman | sets of relations between people doing economic things |
| Social Institutions to Sherman | Non economic ways people interact |
| Ideology to Sherman | More or less coherent system of ideas on how system works |
| Capitalism History to Sherman | Much of history small family based communal societies; Feudalism, Paternalism, Pre Capitalism, Industrial Capitalism; Middle asges had trade, but households consumed what they made, some cottage industry make and sell goods, wage labor developed, people purchased goods, increasingly commerical |
| State Ownership History | State ownership was common in the ancient near east involving means of production, including mills and metal working while private ownership was more common in trading and money lending. Greece: Gov't owned everything but contracted the work out to people and firms. Chi'in dynasty: salt and iron monopolies. Roman Republic: Nearly everything was provided privately. Industrial Revolution: Most successful in countries with low levels of state ownership |
| Early Economic History of England | Edward I 1272-1307: Evicted foreign companies, established English wool trade in Antwerp. Edward III 1327-1377: Put in wage & Price controls to deal with inflation during the war with France. Men were required to work. Richard II & Henry VII: 1400s. Commissioned explorers, put controls on merchants, balanced feudal and commercial interests. Did not like unregulated profit making; The government granted patents for exclusive rights but evils of monopolies led to 1623 Statute of Monopolies which outlaws them with loopholes. Statute of Artificers (1563) regulated employment max wages; |
| Secularization of Church Functions | Henry VIII 1509-1547: Broke with Catholic church, the state in the form of God's monarchy assumed the role of the old church. There was a lot of social unrest, poverty, landlords wanted to remove peasants from land for sheep herding. Catholic church could no longer help the poor. |
| English Poor | Poor law classified deserving and undeserving poor, only deserving were allowed to beg. Each parish had to have a poor fund. In 1572 the state decided poor had to helped and enacted a poor rate formal recognition of right to receive relief. During the rise of mercantilism, mercantilism accepted Christian paternalistic ethic responsibility to General Welfare. Poverty was no longer viewed as personal sin, but as a function of the system. After Civil war 1648-1660 government dominated by gentry and middle class capitalists. Christian paternalistic ethic replaced by the state. |
| Classical Liberalism | a philosophy committed to the ideal of limited government and liberty of individuals including freedom of religion, speech, press, assembly, and free markets |
| Christian Paternalistic Ethic | Condemn acquisitive behavior. Should serve your lord like a father |
| Dutch Early Economic History | Early 17th century Dutch Republic was an example of a highly commercial society and increasing national power. Dutch East India Company very powerful, powerful navy to support trade, small country but could defend itself. Marranos (Jews) brought commercial contracts in Spain and Portugal. Moved into trade and colonization; most financially developed Bank of Amsterdam 1609 |
| Mercantilism | International wealth is fixed: zero sum game gains from one nation could only come at the expense of others. Resulted in war & protectionism, exploitation of weaker countries, wealth based on seizure and exploitation; lasted around 250 years. Britain, France, and other Euro countries developed protectionist policies to prevent the Dutch from controlling trade. Dutch did not adopt mercantilism, but were weakened by it. Early part (Bullionism): goal to attract flow of gold and silver. Countries penalized gold and silver exportation. High duties on imports, others banned. State takes over Christian paternalistic ethic. High tariffs and payments from merchants make England a dominant power |
| Religions and Capitalism | Christianity: Wealth promoted pride, impede salvation, and lending of money was usury. Judaism: Allow to lend money beyond group of saved. Islam: Less hostile to commerce (Despite interest prohibition) Mohammad was a successful merchant, but property law minimized establishment of estates |
| Christianity and Capitalism | Gospels warned riches as a threat to salvation; all gains from trade are wrong; Thomas Aquinas defended private property and dignity of labor but hierarchical view of economic life ordered to allow male to provide standard of living for his family. To get richer was a sin of pride, a danger to the soul and salvation. |
| Aristotle and Wealth | Scorned the communism called for Plato. Private property is more productive and will be taken care of better by individuals instead of a group. A well governed city should not have citizens "live a merchant's way of life" because it is "ignoble and contrary to virtue" |
| St. Thomas Aquinas and Wealth | Natural vs. Artificial Wealth: Desire for natural wealth (food, drink, clothing, housing) is okay. But artificial wealth (money) is not okay. Desiring food or a house is in accordance with nature. Even natural wealth, however, is merely a means to an end in salvation. |
| Merchant's Pleonexia | Greed, avarice, overreaching, etc. |
| Greek Civic Tradition | Stresses personal devotion to the republic through participation in political life and willingness to fight on its behalf. Virtue applied only to male citizens (not women, slaves, merchants, or artisans) Both Greek and Christianity emphasized society and not the individual. |
| Political Legitimacy | Guglielmo Ferrero (1920-1930s) All wars and conflicts after the 1789 French Revolution were in one way or another concerned with political "Legitimacy" Formerly based on hereditary monarch, everyone was born into their caste and knew their place. American and French Revolutions made it so that political legitimacy was derived from the consent of the governed, with each individual possessing certain inherent "rights of man." First world war developed partly out of this crisis of legitimacy and social Order. Out of WWI came the third alternative: the political usurper, the "leader" claiming the right to rule in the name of the people but without consent of the people (Lenin, Stalin, Mussolini, Hitler) the offered people a new sense of meaning, identity, safety, and security by virtue of their belonging to the totalitarian collectivist state. |
| Thomas Hobbes | Criticized Christian & civic republican traditions. Leviathan (1651): brought about secularization of political thought more than anyone (John Locke was close). Goal of government: should be worldly happiness & self love, not higher ideal or civic virtue. Thought christian ideal of pious and holy society was a danger. Humanist - employed by rich family to tutor. Man has no purpose other than his own survival and well being. People don't agree on purpose and war over it. State should enforce laws to protect people. Leviathan = formidable power of the state to enforce laws. Not a fan of religious zeal. To Hobbes: a desire for riches is fine if it is done legally. Hobbes was a champion of absolutism for the sovereign but he also developed some of the fundamentals of European liberal thought: the right of the individual; the natural equality of all men; the artificial character of the political order (which led to the later distinction between civil society and the state); the view that all legitimate political power must be "representative" and based on the consent of the people; and a liberal interpretation of law which leaves people free to do whatever the law does not explicitly forbid. |
| François-Marie Aroue (Voltaire) | Most influential of French philosophes except for Jean-Jacques Rousseau. Voltaire concentrated on introducing empiricism into French intellectual life, and second he touted religious tolerance. Very anti war and pro commerce. Defended "luxury" as a good, as key to the attempt of enlightened intellectuals to legitimate the pursuit of happiness as a worthy political goal. Contrasted the stock exchange and religion. |
| French Philosophes | Heterogeneous group of people who pursued a variety of intellectual interets: scientific, mechanical, literary, philosophical, and sociological. They were united by a few common themes: an unwavering doubt in the perfectibility of human beings, a fierce desire to dispel erroneous systems of thought (religion) and a dedication to systematizing the various intellectual disciples. Highly anti-war. Major goal: rational & intentional progress. |
| Libertine | free of moral restraints |
| Empiricism | the theory that all knowledge is derived from sense-experience. Stimulated by the rise of experimental science, it developed in the 17th and 18th centuries, expounded in particular by John Locke, George Berkeley, and David Hume. |
| Voltaire and Capitalism | Influence on capitalism comes from legitimization of self-interest and his popularization of the notion that wealth created through market activity has important political benefits. Quest for economic gain enabled different people to work together. |
| Voltaire and the "Party of Humanity" | First argued for a Newtonian view of the world where questions are answered by hypothesis and experiments. Late announced that he was a member of the party of humanity and devoted himself to waging war against the twin hydras of fanaticism and superstition. |
| Voltaire and Rousseau: Abundance or Equality? | Major debate in the enlightenment: Moral status of material well being? Luxury led to decline of nations (moralists) and distracting men and women from pursuit of salvation (Christian). Voltaire defended luxury, notion of what was luxury was the basis of civilization. Rousseau: argued that material progress increased inequality, undermined virtue, and made people less happy. Voltaire (and Hume) envisioned secular culture valued sociability, not filled by religious "miracles." They wanted imagination filled with art, literature, and the wonders of natural science. This is Voltaire and Hume's civilization. Material basis of this came from economic growth brought about by commerce. Voltaire argued that increasing comforts from economic growth make us happier |
| Voltaire's The Worlding (1736) | Combined praise of contemporary worldly joys with ridicule of Christian and civic myths. |
| Rousseau's Social Contract | Man is born free, but everywhere he is in chains |
| Jean-Jaques Rousseau | Most influential of the Philosophes. Influenced both the French and American revolutions. Early thinker of modern democracy. He is similar to other philosophes only in that he |
| Rousseau's Discourse on the Arts and Sciences | Denied progress in the arts and sciences improved morality, but instead lead to moral corruption. The A&S bring the desire for unnecessary things & distract people from their moral purposes. People sacrifice political freedom and self rule to pursue the comforts of arts and luxury. They become "happy slaves" who do not recognize the servile state. |
| Rousseau's Discourse on Inequality | The development of A&S leads to inequality with negative moral consequences. The talent for arts and sciences are unequally distributed become source of distinction among people. Further a civilized society must spend great amounts support those who distinguish themselves in A&S. Some must work for others: inequality. Gap between rich and poor comes at the expense of the self-esteem of the poor. Calculation of self interest becomes basis of human relations, destroys trust and citizenship. The great corruption of human sentiment comes with the creation of private property. |
| Marx on Private Property | With private property some people have more some have less. It leads to inequality, because people have different talents, they get different amounts of possessions. Some have more than they need, some have less. This leads to a state of war between the haves and the have nots. |
| Civic Republicanism | Rousseau's antidote to the problems caused by private property. Citizens acquire virtue not by production, but by a willingness to bow to the public good. |
| David Hume | Scottish philosopher who argued that desire, not reason governed human action. Influenced Adam Smith's views on economics and political philosophy through his views on the Newtonian Method, self-interest, and his history of England. Was in favor of free trade, with some protectionism. Opposed mercantilism through his price-specie-flow mechanism. Most important English philosopher Wanted to reject every system not based on fact and observation. Didn't think that history necessarily repeated itself. Argued that complex ideas are just a combination of simple ones "Copy Principle" After Smith and Hume, mercantilism was intellectually dead. |
| Commercial Society to Hume (and later Smith) | a form of social contract, a method of controlling human passions in a way that increased output that all might share, regardless of the effect on individuals. Smith based his own "system of natural liberty" on this idea |
| Adam Smith's Wealth of Nations (1776) | First modern work on economics, designed to inform legislators. Provided a formula for prosperity for all; not just the rich and powerful. Riches beyond even gold and silver. Advocated the two freedoms of political liberty and free enterprise. Goal of the market economy was to make possible an ongoing rise in the standard of living for the vast majority of the population. A competitive market channels self-interest in socially beneficial directions, by increasing productivity, making commodities available at cheaper prices which makes them affordable to more people. This is the "invisible hand" that channels self-interest toward social desirable outcomes. His system of "natural liberty" or the classical model today, was sympathetic to the average man who had been abused over time. Written also to persuade legislators to end mercantilism. Key: PRODUCTION & EXCHANGE. Wealth creation is NOT a zero sum game |
| Smith's Theory of Moral Sentiments | Importance of self-interest. Although he does admit that not all human relations are based on self-interest, but benevolence and altruism can be depended on in markets. Society needed some people with greater virtues- bravery and fortitude which capitalism did not produce. |
| Adam Smith on Exchange & the Division of Labor | Exchange makes possible of division of labor, which is the great mechanism for increased productivity. Division of labor and specialization increased productivity, saved time, replaced labor required in production. The wider the market, the more people involved, the more effective productive efforts of the division of labor are |
| Universal Opulence and Smith | Give people economic freedom with little interference from the state. |
| Natural Liberty to Smith | Right to buy goods from any source, right to have whatever job you want, right to save, invest, and accumulate capital. THIS ALL MADE PEOPLE MORE MORAL |
| Smith's Natural Price | Lowest price that reflected average cost of labor, average profits, and average rent for land. Market price was determined by supply and demand and would eventually move to the natural price |
| Smith's Invisible Hand | A metaphor for the socially positive unintended consequences of the market, by increasing productivity and lowering prices, the market channels self-interest into collective benefits. |
| Smith on Merchants, politicians, and workers | Intellectuals must respond to pressure and urge politicians to promote competition. Much of European society at the time was designed to prevent free competition. Merchants would create legal monopolies while workers would circumvent the labor markets with unions. International trade should be duty free. Smith coined the term" Mercantile System" |
| Alexander Hamilton's Report on the Subject of Manufacturers (1791) | Argued against Smith in the sense that free trade was acceptable between countries of equal development. Hamilton argued that the US must use protectionism to move itself from agriculture to manufacturing. Thomas Jefferson preferred a nation of small farmers, but Hamilton wanted the division of labor to keep up with the US's growing population. In the long run free trade is good, but protectionism is okay in the short run. |
| International Trade | Adam Smith and later David Ricardo, made this case. Economists are almost united on the benefits of international trade. The problem is benefits from trade are hard to see while the costs of importants to domestic workers are easy to see. |
| Smith's Lectures on Jurisprudence (The problems of a commercial society) | State was the most important institution. State should provide national defense, provision of law, and infrastructure. Those with more property had greater interest in the state thus rich should pay more than the poor. Argued that the division of labor had terrible effects on the human psyche and soul, and that the gov't should provide public education to make up for stunted intellectual ability while also making the people more educated to make political decisions. |
| Smith on Morality | Smith was a moral philosopher. Thought virtue was a combination of traits, some of which the market cultivates, others it doesn't. Did not think poverty was ennobling (Enlightenment). Frequent market transactions lead to honesty, trustworthiness, punctuality, and prudence. These traits carried over into other parts of life. Learn to defer immediate gratification. |
| Theory of Moral Sentiments vs. Wealth of Nations | TMS is concered with ordering of moral behavior and the maximization of virtue. WN is concerned with ordering of economic behavior and the maximization of wealth as a means to a higher end. |
| Fundamental Theorems of Welfare Economics | 1st Theorem: Subject to certain exceptions, every competitive equilibrium is Pareto Optimal. The second theorem states that out of all possible Pareto efficient outcomes one can achieve any particular one by enacting a lump-sum wealth redistribution and then letting the market take over |
| Theory of Second Best (1956) | Economics concept that if two or more requirements for achieving a most desirable economic situation cannot be satisfied, a concerted attempt to satisfy the requirements that can be met is not necessarily the second best option and may not be beneficial. |
| Smith and the Debate on Capitalism | Smith was not a spokesman for capitalists, but capitalists invoke his arguments |
| Edmund Burke 1729-17987 | Wrote a History of England from the Romans to the Magna Carta. Provided a conservative analysis of the hazards of some forms of capitalism to politics and culture of a commercialized society. Revived a party of conservative thought (Whigs) and concentrate on change and when it should occur. Criticized the idea of social contract. To Burke, government developed over time, between the living, the dead, and those yet to be born - preserve the best of the past. Longevity and continuity in a society is evidence of what works. Main contribution to the debate over capitalism was the idea that commercial society may depend on inherited institutions that restrain people and make them act in certain ways. |
| Burke and the French & American Revolutions | French revolution was propelled into dangerous radicalism by a combination of radical intellectuals and newly rich entrepreneurs who were orientated toward risk and failed to appreciate the existing institutions of society. Burke reasoned that men of money through commerce and Finance had a mentality that made them too open to the entreaties of radical intellectuals. In contract, he approved of the American revolution where men of money were perserving cultural institutions against change forced by the King. |
| Burke and Advanced Capitalism | Society he sought to preserve was highly commercialized. Shared the view of Voltaire and Smith for commercial society over historical alternatives. Burke argued that Smith had overlooked the institutionalized and cultural prerequisites of a commercialized society, and that radicalized intellectuals presented a threat to the foundations on which commercial society rests. Pro growth whig who did not want price regulation. Thought radical change was dangerous because institutions and customs are often intertwined, and changing one might have unintended consequences. Don't destroy an existing institution without a new replacement. Traditions and culture have a role even if they are not obviously rational |
| Burke and EIC | Argued that company's agents were destroying Indian culture with their commerce. Company was bankrupt while its agents were rich. |
| Justus Moser | German conservative who defended traditional, hierarchical society in which people knew their place. Precursor to the critics of globalization. Wanted to preserve the pre-commercial culture that was being destroyed. Defended a society of rank (Stadestaat). He very eloquently expressed the laments of those seeing traditional way of life destroyed by capitalism. |
