The Wealth of Nations by Adam Smith

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Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

This is much harder than it seems, because a formidable mythology has arisen over the past two centuries around Adam Smith. That mythology remains staunchly defended by those—academics, economists, politicians, ideologues, enthusiasts—who have sought to recruit the wisdom of Smith’s ideas, and more frequently the prestige of his name, to projects of their own. In five key areas, it demands to be tackled head-on. MYTH 1: THERE IS AN ‘ADAM SMITH PROBLEM’ The first myth is, in a way, a numerical one. In the nineteenth century a debate originated among German scholars over what came to be called Das Adam Smith Problem. Was there just one Adam Smith, with one overarching theory, or were there two: the Adam Smith of The Theory of Moral Sentiments and the very different Adam Smith of The Wealth of Nations? Isn’t the former work really about altruism and human goodness, and the second about selfishness and human greed?

ALSO BY JESSE NORMAN Edmund Burke: The First Conservative The Big Society: The Anatomy of the New Politics BIBLIOGRAPHY WORKS BY ADAM SMITH Correspondence of Adam Smith, ed. Ernest Campbell Mossner and Ian Simpson Ross, Liberty Fund 1987 An Early Draft of Part of The Wealth of Nations, in LJ Essays on Philosophical Subjects, ed. W. P. D. Wightman and J. C. Bryce, Liberty Fund [1795] 1980 An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell, A. S. Skinner and W. B. Todd, 2 vols., Liberty Fund [1776] 1981 Lectures on Jurisprudence, ed. R. L. Meek, D. D. Raphael and P. G. Stein, Liberty Fund [1762–4] 1982 Lectures on Rhetoric and Belles Lettres, ed. J. C. Bryce, Liberty Fund [1762–3] 1985 Letter from Adam Smith, LL.D. to William Strahan, Esq., in David Hume, Essays, Moral, Political, and Literary, ed.

In collaboration with Debreu, General Competitive Analysis suggested, Arrow had thus brought the key argument of The Wealth of Nations to a mathematically compelling modern resolution—a resolution which later figured heavily in the award of Nobel Prizes to both men, though not to McKenzie. But a reader of the book could be forgiven for thinking that for Arrow and Hahn Adam Smith’s real genius lay not in what The Wealth of Nations—nor for that matter The Theory of Moral Sentiments, let alone his other writings—might have actually said, but in identifying a line of thought that anticipated their own general equilibrium proof itself. Smith’s work was not quite coherent or consistent, they maintained, but he could nevertheless be considered a creator of general equilibrium theory, alongside Arrow and the others. However, there was one small problem: as a reading of Adam Smith, Arrow and Hahn’s great textbook was highly misleading.


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

Since the copyright expired, many publishers have put out their own editions, including the University of Glasgow, University of Chicago, Everyman's Library, and Liberty Press; there's even a Bantam paper-back, unabridged! My preference is the 1937 (latest reprint, 1994) Modern Library edition, edited by Edwin Cannan. The significance of The Wealth of Nations has reached such biblical proportions that a complete concordance was prepared by Fred R. Glahe (1993), economics professor at the University of Colorado. Oh, the wonders of computers! Did you know that the word "a" appears 6,691 times in The Wealth of Nations? A concordance is undoubtedly valuable, especially for scholars. For example, "de-5.1 recommend the book Adam Smith Across Nations: Translations and Receptions of The Wealth of Nations, edited by Cheng-chung Lai (2000), for a fascinating account of the influence of Adam Smith's book over the centuries. mand" appears 269 times while "supply" appears only 144 times. Keynes would be pleased. Smith Is Appointed Customs Official and Bums His Clothes Following the publication of his classic book.

They point to the fact that God is not mentioned in The Wealth of Nations. However, as noted earlier, Smith did not abandon his religious beliefs. His Theory of Moral Sentiments, which he edited again after the publication of The Wealth of Nations, makes numerous references to God and religion. Smith was admittedly no longer a practicing Presbyterian, rebelling against austere Calvinist behavior, but he was a believer, a Deist who adopted the Stoic belief that God works through nature. As an optimist, Smith believed in the goodness of the world and envisioned a heaven on earth. Benjamin Franklin Biographers John Rae and Ian Simpson Ross give credence to the story that the American founding father, Benjamin Franklin (1706-90), developed a friendship with Adam Smith and had some influence on his writing The Wealth of Nations. John Rae recounted how Franklin visited with Smith in Scotland and London and, according to a friend of Franklin, "Adam Smith when writing his Wealth of Nations was in the habit of bringing chapter after chapter as he composed it to himself [Franklin], Dr.

Time, May 22, 110-12. Galbraith, John Kenneth. 1975 [1965]. "How Keynes Came to America." In Essays on John Maynard Keynes, ed. Milo Keynes, 132-41. Cambridge, UK: Cambridge University Press. Garrison, Roger B. 1985. "West's 'Cantillon and Adam Smith': A Comment." Journal of Libertarian Studies 7, 2 (Fall): 287-94. . 2001. Time and Money. London: Routledge. Glahe, Fred R., ed. 1978. Adam Smith and the Wealth of Nations: 1776-1976 Bi-centennial Essays. Boulder: Colorado Associated University Press. . 1993. Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations: A Concordance. Landam, MD: Rowman and Littlefield. Gordon, H. Scott. 1967. "Discussion on Das Kapital: A Centenary Appreciation." American Economic Review 52, 2 (May): 640^-1. Gutierrez, Gustavo. 1973. A Theology of Liberation: History, Politics, and Salvation, trans.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Minsky Conference on the State of the US and World Economies – ‘Meeting the Challenges of the Financial Crisis’; www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2009/april/yellen-minsky-meltdown-central-bankers/ Yergin, Daniel and Joseph Stanislaw, 1998, The Commanding Heights: The Battle Between Government and the Marketplace that is Remaking the Modern World, New York: Free Press Yueh, Linda, 2010, The Economy of China, Cheltenham: Edward Elgar ________, 2011, Enterprising China: Business, Economic, and Legal Developments Since 1979, Oxford: Oxford University Press ________, 2013, China’s Economic Growth: The Making of an Economic Superpower, Oxford: Oxford University Press Notes Please note that some of the links referenced throughout this work may no longer be active. Introduction: Great Economists on Our Economic Challenges 1.    Adam Smith, 1979 [1776], An Inquiry into the Nature and Causes of the Wealth of Nations, eds. R. H. Campbell, A. S. Skinner and W. B. Todd, Oxford: Clarendon Press, bk II, ch. 3, para 2. 2.    Alvin H. Hansen, 1939, ‘Economic Progress and Declining Population Growth’, American Economic Review, 29(1), pt I, pp. 1–15. 1 – Adam Smith: Should the Government Rebalance the Economy? 1.    Adam Smith, 1979 [1776], An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell, A. S. Skinner and W. B. Todd, Oxford: Clarendon Press, bk IV, ch. 2, para. 10. 2.    Ibid., bk V, ch. 2, pt II, appendix to arts. I & II, para. 12. 3.    

Their collective knowledge has already shaped the policies that governed the world economy during a period in which our living standards have significantly improved: from the Industrial Revolution through the Golden Age of economic growth after the Second World War to the current digital age. Perhaps their insights can help guide our economic future too. 1 Adam Smith: Should the Government Rebalance the Economy? Widely viewed as the seminal figure in economics, Adam Smith witnessed the beginning of the Industrial Revolution, which fundamentally changed the Western world. During this time and in the decades that followed, Britain became the world’s first industrialized economy. This extraordinary period formed the backdrop to one of the most influential books in economics. Adam Smith’s magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, took a decade to write. It sets out the concept of the ‘invisible hand’, which refers to the unseen market forces that set prices by equating supply and demand.

He subsequently returned to Kirkcaldy to live with his mother, and focused for the next six years on writing The Wealth of Nations. From 1773–6, he returned to London to finish the book. Smith’s publication aimed to influence British MPs to support a peaceful resolution to the American colonies’ War of Independence. In the final paragraph of The Wealth of Nations, Smith wrote that Britain should ‘endeavour to accommodate her future views and designs to the real mediocrity of her circumstances’.7 It was a sentence retained in all subsequent editions and reflected Smith’s enduring belief that the market, and not the state, should dictate economic progress in all respects, including colonialism. Adam Smith retired in 1776, the year that America declared independence, and he spent the next two years in Kirkcaldy writing another book, on the ‘Imitative Arts’, which covered painting, music and poetry.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

The legacy of their lives and work demonstrates that ideas have always had a lasting impact on society – both then and now. Notes Introduction: Great Economists on Our Economic Challenges 1. Adam Smith, 1979 [1776], An Inquiry into the Nature and Causes of the Wealth of Nations, eds. R. H. Campbell, A. S. Skinner and W. B. Todd, Oxford: Clarendon Press, bk II, ch. 3, para 2. 2. Alvin H. Hansen, 1939, ‘Economic Progress and Declining Population Growth’, American Economic Review, 29(1), pt I, pp. 1–15. Chapter 1 – Adam Smith: Should the Government Rebalance the Economy? 1. Adam Smith, 1979 [1776], An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell, A. S. Skinner and W. B. Todd, Oxford: Clarendon Press, bk IV, ch. 2, para. 10. 2. Ibid., bk V, ch. 2, pt II, appendix to arts. I & II, para. 12. 3.

Their collective knowledge has already shaped the policies that governed the world economy during a period in which our living standards have significantly improved: from the Industrial Revolution through the Golden Age of economic growth after the Second World War to the current digital age. Perhaps their insights can help guide our economic future too. CHAPTER 1 Adam Smith: Should the Government Rebalance the Economy? Widely viewed as the seminal figure in economics, Adam Smith witnessed the beginning of the Industrial Revolution, which fundamentally changed the Western world. During this time and in the decades that followed, Britain became the world’s first industrialized economy. This extraordinary period formed the backdrop to one of the most influential books in economics. Adam Smith’s magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, took a decade to write. It sets out the concept of the ‘invisible hand’, which refers to the unseen market forces that set prices by equating supply and demand.

He subsequently returned to Kirkcaldy to live with his mother, and focused for the next six years on writing The Wealth of Nations. From 1773–6, he returned to London to finish the book. Smith’s publication aimed to influence British MPs to support a peaceful resolution to the American colonies’ War of Independence. In the final paragraph of The Wealth of Nations, Smith wrote that Britain should ‘endeavour to accommodate her future views and designs to the real mediocrity of her circumstances’.7 It was a sentence retained in all subsequent editions and reflected Smith’s enduring belief that the market, and not the state, should dictate economic progress in all respects, including colonialism. Adam Smith retired in 1776, the year that America declared independence, and he spent the next two years in Kirkcaldy writing another book, on the ‘Imitative Arts’, which covered painting, music and poetry.


pages: 510 words: 163,449

How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World and Everything in It by Arthur Herman

British Empire, California gold rush, creative destruction, do-ocracy, financial independence, global village, invisible hand, Isaac Newton, James Watt: steam engine, Joan Didion, joint-stock company, laissez-faire capitalism, land tenure, mass immigration, means of production, new economy, New Urbanism, North Sea oil, oil shale / tar sands, Republic of Letters, Robert Mercer, spinning jenny, The Wealth of Nations by Adam Smith, transcontinental railway, trickle-down economics, urban planning, urban renewal, working poor

It is the indispensable guide to the intellectual milieu of Edinburgh in the second half of the eighteenth century, and offers the proper context for understanding the reception and impact of Smith’s ideas. The two best introductions to Smith himself are Donald Winch’s book mentioned above, and Jerry Z. Muller’s Adam Smith in His Time—And Ours (New York, 1993). Ian Ross’s biography of Smith (see Chapter Three, above), was of course crucial for writing this chapter, as was Dugald Stewart’s Biographical Memoir of Adam Smith, which first appeared in 1793 but which was reprinted from the collected works of Dugald Stewart in 1966. Adam Smith’s two major works, An Inquiry Into the Nature and Causes of the Wealth of Nations and The Theory of Moral Sentiments, are generally available, while even his lectures on jurisprudence and Lectures on Rhetoric and Belles Lettres, both of which are based on notes by former students, can be found in modern editions.

Another, at least by 1759, was Hutcheson’s former pupil Adam Smith. His early lectures given in Edinburgh at the behest of Lord Kames heavily influenced their notion of poetry and literature, or belles lettres, as a cultural bellwether, and of clear, elegant English as the best vehicle for modern literary communication (the model Smith himself had proposed was Jonathan Swift). They were also impressed by his Theory of Moral Sentiments, which reworked Hutcheson’s theory of an innate moral sense. William Robertson used Smith’s lectures on natural law and the four-stage theory of civil society for his own history of Europe—so much so that Smith privately accused him of plagiarism! All this shows that long before he published his Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith was a prominent and influential figure in Edinburgh circles.

One of these was John Millar, who served as tutor to Kames’s son, then became the University of Glasgow’s first Professor of Civil Law. As a teacher and scholar, Millar would virtually invent modern political history. Another was Adam Smith, who came to Edinburgh in 1746 looking for an academic job. Because none was available, Kames arranged for him to deliver a series of public lectures on rhetoric, literature, and the subject dear to Kames’s heart, civil jurisprudence. Those lectures, delivered between 1748 and 1751, would become the foundation for the Wealth of Nations. A third was James Boswell, the son of Kames’s colleague on the Court of Session bench, Lord Auchinleck. The headstrong James quarreled frequently with his cold, reproachful father, and looked to the rough but affectionate Kames as his intermediary when things were going badly at home.


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What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

See also Phillip Blond, “Let Us Put Markets to the Service of the Good Society,” Financial Times, April 13, 2010. 87 David Brooks, “The Day After Tomorrow,” New York Times, Sept. 14, 2010. 88 “Chris Christie Defers Truth at Congressional Hearings on Deferred Prosecution Agreements,” Editorial, The Star-Ledger, June 28, 2009; and Neil Gordon, “John Ashcroft Lands Lucrative Corporate Monitor Gig Courtesy of Former Employee,” The Project On Government Oversight (POGO) Blog, Dec. 11, 2007. 89 Lynnley Browning, “US Curbs Deals as Prosecution Tactic,” International Herald Tribune, Feb. 7, 2009. 90 Eric Lichtblau and Kitty Bennett, “30 Ex-Government Officials Got Lucrative Posts as Corporate Monitors,” New York Times, May 23, 2008. 91 Jean-Michel Bezat, “The Ethics Commission Judges Alexander Juniac Cannot Run Areva,” Le Monde, Dec. 16, 2010. Mary Visot, “Areva, the Candidate of Juniac ‘Incompatible,’” Le Figaro, Dec. 15, 2010. 92 “Bonus Windfall Tax,” Editorial, Financial Times, Nov. 20, 2009. 93 Adam Smith, The Wealth of Nations (New York: Oxford University Press Classics), 376. 94 P.J. O’Rourke, “Adam Smith Gets the Last Laugh,” Financial Times, Feb. 10, 2009. 95 Ibid. 96 Adam Smith, The Wealth of Nations, 129. 97 Adam Smith, The Wealth of Nations, 188. 98 Trevor Manuel, “Let Fairness Triumph over Corporate Profits,” Financial Times, March 16, 2009. 99 Nicholas Phillipson, Adam Smith: An Enlightened Life (Hartford, CT: Yale University Press, 2010). 100 James K. Galbraith, Predator State, 162. 101 “Bonus Points,” Editorial, Financial Times, Dec. 7, 2009. 102 David Brown, “Blood Levels of Trans Fats Plunge after Food-Labeling Decree,” Washington Post, Feb. 9, 2012. 103 Michael E.

He explicitly endorsed regulation to achieve what we now recognize as an Aristotelian balance that rejects the market fundamentalism of laissez-faire Reaganomics. For us today in interpreting Adam Smith, an especially important bubble arose in 1772 in Scotland, when the giant Ayr Bank and others collapsed, impoverishing Scotland for years. P.J. O’Rourke explained the environment in which Smith wrote the Wealth of Nations in a February 2009 column in the Financial Times: “The Mississippi Scheme and the South Sea Bubble had both collapsed in 1720, three years before his (Smith’s) birth. In 1772, while Smith was writing The Wealth of Nations, a bank run occurred in Scotland. Only three of Edinburgh’s 30 private banks survived.”94 As he looked out his study window, Adam Smith could scarcely avoid the financial news of the day, and realized the barrier such abuses posed to his hopes for advancing the condition of his day.95* That accounts for his abiding support for prudent government regulation to channel the business community’s greed into competition.

Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics, vol. 3, no. 4, 1976. 24 John Plender, “Investing: Rules of Engagement,” Financial Times, July 11, 2010. 25 Justin Baer, Francesco Guerrera, and Richard Milne “A Need to Reconnect,” Financial Times, March 13, 2009. 26 Rakesh Khurana and Nitin Nohria, “Management Needs to Become a Profession,” Financial Times, Oct. 20, 2008. 27 Adam Smith, The Wealth of Nations, 368–69. 28 Joe Nocera, “Nice Wasn’t Part of the Deal,” New York Times, Aug. 1, 2009. 29 Adam Smith, The Wealth of Nations. 30 Milton Friedman, “Rethinking the Social Responsibility of Business,” Reason, October 2005. 31 David Magee, Jeff Immelt and the New GE Way (New York: McGraw-Hill Professional, 2009). 32 John P. Hussman, “Misallocating Funds,” Weekly Market Comment, July 12, 2010, hussmanfunds.com, http://www.hussmanfunds.com/wmc/wmc100712.htm. 33 Truman F.


pages: 205 words: 58,054

Private Government: How Employers Rule Our Lives (And Why We Don't Talk About It) by Elizabeth S. Anderson

Affordable Care Act / Obamacare, barriers to entry, call centre, collective bargaining, corporate governance, correlation does not imply causation, declining real wages, deskilling, feminist movement, Frederick Winslow Taylor, full employment, invisible hand, manufacturing employment, means of production, Panopticon Jeremy Bentham, principal–agent problem, profit motive, Ronald Coase, shareholder value, Socratic dialogue, spinning jenny, The Nature of the Firm, The Wealth of Nations by Adam Smith, trickle-down economics

Smith, in particular, has been misread as a theorist of benign “invisible hand” self-interest and socially disembedded, selfequilibriating markets. Bromwich rightly invokes Polanyi against such illusions, but wrongly supposes that Smith held them. For corrections, see Gavin Kennedy, “Adam Smith: Some Popular Uses and Abuses,” in Adam Smith: His Life, Thought, and Legacy, edited by Ryan Hanley (Princeton, NJ: Princeton University Press, 2016), 461–77. 2. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Vol. 1, Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981), I.10.2.61. Nor did Locke support unregulated labor markets. Although he prescribed harsh measures for dealing with those among the poor whom he imagined to be voluntarily unemployed, he also argued that property owners should be required to hire the involuntarily unemployed at a state-prescribed minimum wage.

My focus in this lecture is on those who embraced it. 2. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, vol. 1, Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981), I.ii.2. 3. Karl Marx, Capital: A Critique of Political Economy, edited by Frederick Engels, translated by Samuel Moore and Edward Aveling (Chicago: Charles H. Kerr, 1912), 195–96. 4. This is not just cynicism on Smith’s part. He points to a transcultural social fact, that every gift implies a debt that, until reciprocated in kind, subordinates the recipient to the giver. See Marcel Mauss, The Gift, translated by I. Cunnison (New York: Norton, 1967); William Miller, Humiliation (Ithaca, NY: Cornell University Press, 1993), ch. 1. 5. Marx, Capital, 195. 6. Thus, the so-called Adam Smith problem—the purported tension between Smith’s moral theory, founded on sympathy with others, and his economics, supposedly founded on pure egoism, is dissolved. 7.

However, Locke mistakenly held that privatizing the supposedly uncultivated land in America would redound to everyone’s interests, including that of Native Americans. He did not appeal to racist premises to justify his position. On this point, see Jeremy Waldron, God, Locke, and Equality: Christian Foundations of John Locke’s Political Thought (Cambridge and New York: Cambridge University Press, 2002), Kindle loc. 2256–2335, 2402–15. 5. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Vol. 2, Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981), V.1.f.61. 6. Locke contradicted himself on this point. Notoriously, he invested in the slave trade, and probably helped draft The Fundamental Constitutions of Carolina, 1669, http://avalon.law.yale.edu/17th_century/nc05.asp, which upheld slavery. However, there is no way to reconcile the actual institution of chattel slavery with his theory of property.


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The Rational Optimist: How Prosperity Evolves by Matt Ridley

"Robert Solow", 23andMe, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, Flynn Effect, food miles, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, hedonic treadmill, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, Kickstarter, knowledge worker, Kula ring, Mark Zuckerberg, meta analysis, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, plutocrats, Plutocrats, Ponzi scheme, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, Thales and the olive presses, Thales of Miletus, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, Vilfredo Pareto, wage slave, working poor, working-age population, Y2K, Yogi Berra, zero-sum game

‘Kelly Cobb of Drexel University set out to make a man’s suit’. http://www.wired.com/print/culture/design/news/2007/03/100milesuit0330. See also http://www.thebigquestions.com/2009/10/30/the-10000-suit. p. 37 ‘In civilized society,’ wrote Adam Smith’. Smith, A. 1776. The Wealth of Nations. p. 38 ‘Leonard Read’s classic 1958 essay “I, Pencil”’. Read, L.E. 1958. I, Pencil. The Freeman, December 1958. For a fine modern rerun of the same subject see the novel by Roberts, R. 2008. The Price of Everything. Princeton University Press. p. 38 ‘As Friedrich Hayek first clearly saw’. Hayek, F.A. 1945. The use of knowledge in society. American Economic Review 35:519–30. p. 39 ‘a smaller quantity of labour produce a greater quantity of work’. Smith, A. 1776. The Wealth of Nations. p. 39 ‘you would have spent your after-tax income in roughly the following way’. Data from the Bureau of Labour Statistics: www.bls.org.

There was once a German philosophical conundrum known as Das Adam Smith Problem, which professed to find a contradiction between Adam Smith’s two books. In one he said that people were endowed with instinctive sympathy and goodness; in the other, that people were driven largely by self-interest. ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it,’ he wrote in Theory of Moral Sentiments. ‘Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour,’ he wrote in The Wealth of Nations. Smith’s resolution of the conundrum is that benevolence and friendship are necessary but not sufficient for society to function, because man ‘stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons’.

Krause, J. et al. 2007. The derived FOXP2 variant of modern humans was shared with Neandertals. Current Biology 17:1908–12. p. 57 ‘as Leda Cosmides and John Tooby put it’. Cosmides, L. and Tooby, J. 1992. Cognitive adaptations for social exchange. In The Adapted Mind (eds J.H. Barkow, L. Cosmides and J. Tooby). Oxford University Press. p. 57 ‘In Adam Smith’s words’. Both Adam Smith quotes are from book 1, part 2, of The Wealth of Nations (1776). p. 57 ‘In the grasslands of Cameroon’. Rowland and Warnier, quoted in Shennan, S. 2002. Genes, Memes and Human History. Thames & Hudson. p. 59 ‘The primatologist Sarah Brosnan tried to teach two different groups of chimpanzees about barter’. Brosnan, S.F., Grady, M.F., Lambeth, S.P., Schapiro, S.J. and Beran, M.J. 2008. Chimpanzee autarky.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Robert Solow", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cleantech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, margin call, Mark Zuckerberg, market bubble, means of production, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, profit maximization, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, zero-sum game

The most influential critic of all was Quesnay's contemporary, a man who had travelled in France and talked at length with him: Adam Smith. CLASSICAL ECONOMICS: VALUE IN LABOUR As industry developed rapidly through the eighteenth and nineteenth centuries, so too did the ideas of a succession of outstanding thinkers like Adam Smith (1723-90), David Ricardo (1772-1823) and Karl Marx (1818-83), a German who did much of his greatest work in England. Economists started to measure the market value of a product in terms of the amount of work, or labour, that had gone into its production. Accordingly, they paid close attention to how labour and working conditions were changing and to the adoption of new technologies and ways of organizing production. In The Wealth of Nations, first published in 1776 and widely regarded as the founding work of economics, Smith's famous description of the division of labour in pin factories showed his understanding of how changes in the organization of work could affect productivity and therefore economic growth and wealth.

Although their theories differed in many respects, the classical economists shared two basic ideas: that value derived from the costs of production, principally labour; and that therefore activity subsequent to value created by labour, such as finance, did not in itself create value. Marx, we will see, was more subtle in his understanding of this distinction. Adam Smith: The Birth of the Labour Theory of Value Born in 1723 into a family of customs officials in Kirkcaldy, in the county of Fife, Scotland, Adam Smith became Professor of Moral Philosophy at the University of Glasgow before turning his mind to what we now call economic questions, although at the time such questions were deeply influenced by philosophy and political thought. With Britain well on the path to industrial capitalism, Smith's The Wealth of Nations highlighted the role of the division of labour in manufacturing. His account of pin-manufacturing continues to be cited today as one of the first examples of organizational and technological change at the centre of the economic growth process.

The specific challenge I pose here is to move beyond Oscar Wilde's cynic, who knows the price of everything but the value of nothing, towards an economics of hope, where we are better empowered to question the assumptions of economic theory and how they are presented to us. And to choose a different path among the many that are available. 1 A Brief History of Value There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Adam Smith, The Wealth of Nations (1776) Today we take increasing prosperity for granted. We assume that by and large the next generation will be better off than the last. But it was not always so. For most of human history people had no such expectations and, partly because living standards improved at best very slowly, few thinkers devoted much time to asking why some economies grow and others do not. In the early modern period, the pace of change quickened.


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Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

A woman is willing to punish defectors in ways that entail even the sacrifice (from the Latin, “make holy”) of her own profits.19 Humans have a sense of justice (as the primatologist Frans de Waal argues, so also do some other animals, if less elaborately), a sense of appropriate behavior toward other people and especially in other people. They will go to lengths to praise and reward manifestations of the virtues—prudence, temperance, courage, justice, faith, hope, and love—and to blame and punish the corresponding vices. The Blessed Adam Smith called such matters of internalized ethics the “impartial spectator”—though a spectator who then gets up on stage to act, for the moral sentiments and the wealth of nations. A society can craft an official rule against cheating in business. Such a rule would be a “good institution.” It’s even necessary, to discourage the simplest game-theoretic defections and to generate “Schelling points” around which business can gather. True, Hasidic diamond dealers on 47th Street between 5th and 6th Avenues in New York get along without official rules.

There is a world of difference between the view of religion and the church evinced in Northanger Abbey [begun in 1798] and Mansfield Park [written 1811–1812].”26 Yes: as I said, Austen was a conservative. Fervent religiosity is absent. The three virtues of the classical and Christian seven that are missing from Austen—transcendent hope and faith and love of God—are the same one’s missing from Adam Smith. (Austen appears to have got the gist of Smith only indirectly, if at all. Her father’s considerable library of five hundred books might possibly have contained one of the two books Smith published. Waterman, who has gone into the matter of the circulation of The Wealth of Nations in detail, doubts it.) That is, she is not a Romantic novelist, even though she concerned herself exclusively with romance in its recent sense of “affairs of the heart.” She does not take Art as a model for life, and does not elevate the Artist to a lonely pinnacle of heroism, or worship the Middle Ages, or adopt any of the other, antibourgeois themes of Novalis, Brentano, Sir Walter Scott, and later Romantics.

Smith was inclined to “offices of secret charity,” a most bourgeois inclination.18 The Duke of Buccleuch, in whose entourage Smith traveled the Continent 1764–1766, admired him for “every private virtue,” the sort of virtues an aristocrat would think well suited to a bourgeois.19 On eighteenth-century suppositions, the public virtues—that is, the political virtues—were to be exercised mainly by aristocrats. Of the seven principal virtues of classical and Christian theory, Adam Smith paid particular attention to three. His three books—two published and one intended—match the three. Prudence is the chief, if nothing like the only, virtue considered in The Wealth of Nations. Temperance is the chief, if again not the only, virtue considered in The Theory of Moral Sentiments. And justice was to be considered in a projected Treatise on Jurisprudence, the shape of which we can imagine from elaborate notes by Smith’s students in courses given from his chair of Moral Philosophy in 1762–1763 and 1766.


The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank

carbon footprint, carried interest, Cass Sunstein, clean water, congestion charging, corporate governance, deliberate practice, full employment, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit motive, Ralph Nader, rent control, Richard Thaler, Ronald Coase, Ronald Reagan, sealed-bid auction, smart grid, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, trickle-down economics, ultimatum game, winner-take-all economy

If the same question were posed today, of course, more than 99 percent of my colleagues would name Adam Smith. My views about Darwin’s significance reflect no shortage of admiration for Smith on my part. On the contrary, reading any random passage from the eighteenth-century Scottish moral philosopher’s masterwork, The Wealth of Nations, still causes me to marvel at the depth and breadth of his insights. Charles Darwin was himself no slouch, obviously, yet few people outside academic departments of biology and economics associate his name with ideas in economics. Those who have studied Darwin’s theory of evolution carefully, however, realize that he was in fact heavily influenced by the works of the economists Thomas Malthus and David Ricardo. Malthus had been a student of Smith’s, and Ricardo was heavily influenced by The Wealth of Nations. So even if my prediction comes true, Smith’s fans can still justifiably think of him as the great-grandfather of economics. 16 DARWIN’S WEDGE 17 I base my prediction on a subtle but extremely important distinction between Darwin’s view of the competitive process and Smith’s.

Jacoby, “Probabilistic Forecast for 21st Century Climate Based on Uncertainties in Emissions (without Policy) and Climate Parameters,” MIT Joint Program on the Science and Policy of Global Change, Report 169, January 2009. 5. Jane Mayer, “Covert Operations: The Billionaire Brothers Who Are Waging a War against Obama,” New Yorker, August 30, 2010, pp. 44–55. 6. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, State College, PA: Penn State University, 2005, p. 364 (originally published in 1776). 7. Ibid., p. 111. 8. For a comprehensive account of how laissez-faire enthusiasts have often misrepresented Adam Smith’s positions, see Amartya Sen’s introduction to the 250thanniversary edition of Smith’s The Theory of Moral Sentiments, New York: Penguin, 2009. 9. Charles Darwin, The Origin of Species, 6th London Edition, The Literature Project, 2000–2010. Modern biologists have pressed the claim that selection sometimes occurs at the group level.

Chapter Twelve: The Libertarian’s Objections Reconsidered 1. John Rawls, A Theory of Justice, Cambridge, MA: Belknap Press of Harvard University Press, 1971. 2. Harriet Rubin, “Ayn Rand’s Literature of Capitalism,” New York Times, September 15, 2007, http://www.nytimes.com/2007/09/15/business/15atlas.html. 3. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, State College, PA: Penn State University, 2005, book 1, chapter 1 (originally published in 1776), http://www.online-literature.com/adam_smith/wealth_nations/3/. 4. Ibid., book 1, chapter 3. 5. Robert Nozick, Anarchy, State, and Utopia, New York: Basic Books, 1974. 6. www.sirclisto.com/cavalier/spain.htm. INDEX absolute consumption, 24–25, 40 absolute income, 23, 44 ACAP. See Aviation Consumer Action Project acid rain, 176, 177, 178 advertising, consumer tastes affected by, 19 Aesop, 157 Afghanistan, corruption in, 56 agriculture, income transfers in, 113, 115–16 Agriculture, U.S.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

As to the question of what constituted wealth, the answer was to come from a fellow Scotsman and friend – Adam Smith. Determining the Wealth of Nations Adam Smith, a lifelong bachelor who lived with his mother and sister all his adult life, was a friend of David Hume. Smith was elected a Professor of Moral Philosophy at Glasgow, and later gave up the post to become a tutor to the Duke of Buccleuch, which allowed him to travel all over Europe meeting the famous philosophers of his day. Smith revolutionized the way we conduct our lives and governments their policies. In the eighteenth century, kings still sought to increase their wealth through invasion and plunder – Britain was even then in the middle of its long century of war with France, which lasted, on and off, from 1695 to 1815. In his celebrated book An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, Adam Smith pointed out that it was the productivity of its workers which was the key to the prosperity of a nation and not the treasures of gold and silver it had accumulated.

The Certainties of David Ricardo The years which followed Adam Smith’s death in 1790 were turbulent for Europe. Britain had already lost its colonies in North America. The Rebels had issued a Declaration of Independence in the same year the Wealth of Nations was published and defeated the mother country in a series of decisive battles. They had established the first republic in many centuries in 1789, the same year the French Revolution broke out. In 1793 King Louis XVI of France was beheaded and a French Republic was established. Britain went to war with France to restore the Old Monarchy in a coalition with other European kingdoms and after 22 years defeated the French at Waterloo in 1815. These years saw widespread political as well as economic turbulence. Inspired by the French Revolution and Adam Smith’s radical ideas, people imagined that the society they lived in could be much better.

Not selfishness but self-interest. He was well aware of the role of benevolence and sympathy in social life, which he had discussed in The Theory of Moral Sentiments. There were restraints on the pursuit of self-interest by individuals in the laws of the land as well as social conventions. But the dynamic energy unleashed by millions of people pursuing self-interest was the key to the wealth of nations. Adam Smith was a Deist, that is, someone who did not believe in the Revelation or the Virgin Birth but was religious. The fashionable doctrine in those days was of God as a Clockmaker. God did not intervene in the mundane affairs of the people on earth. He set the universe in motion as if it were a highly sprung and delicate clock which then worked away on its own as the pendulum swung back and forth.


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The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boris Johnson, British Empire, Broken windows theory, Columbian Exchange, computer age, Corn Laws, cosmological constant, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Gunnar Myrdal, Henri Poincaré, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta analysis, meta-analysis, mobile money, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

It is no accident that alongside his scientific apprenticeship he had a deep inculcation in the philosophy of the Enlightenment. Emergent ideas were all around him. He read his grandfather’s Lucretius-emulating poems. ‘My studies consist in Locke and Adam Smith,’ he wrote from Cambridge, citing two of the most bottom–up philosophers. Probably it was Smith’s The Moral Sentiments that he read, since it was more popular in universities than The Wealth of Nations. Indeed, one of the books that Darwin read in the autumn of 1838 after returning from the voyage of the Beagle and when about to crystallise the idea of natural selection was Dugald Stewart’s biography of Adam Smith, from which he got the idea of competition and emergent order. The same month he read, or reread, the political economist Robert Malthus’s essay on population, and was struck by the notion of a struggle for existence in which some thrived and others did not, an idea which helped trigger the insight of natural selection.

It was the wider distribution of political rights that made government accountable and responsive to citizens, allowing the great mass of people to take advantage of economic opportunities. Human action, but not human design The great enrichment was an evolutionary phenomenon. Let’s return to the late eighteenth century, when Britain stands on the brink of this great enrichment, and revisit that great thinker about the general theory of evolution, Adam Smith. In 1776 Smith published his second book, The Wealth of Nations. In it he set out to champion a different evolutionary idea from that which he had set out in his Theory of Moral Sentiments. If God was not the cause of morality, was government the cause of prosperity? In Smith’s day, commerce was a tightly regulated business, with joint-stock companies chartered specifically and exclusively by the state to have monopolies, and mercantilist trade policies designed to promote certain kinds of foreign exports, not to mention professions strictly licensed by the government.

But in neither case is there a central commanding intelligence. The knowledge is dispersed among millions of people/genes. It is decentralised. As so often, Smith got there first, saying in The Wealth of Nations: ‘The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.’ Invisible hands This decentralised emergence of order and complexity is the essence of the evolutionary idea that Adam Smith crystallised in 1776. In his famous metaphor, Smith made the guiding hand invisible: each person ‘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’.


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What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bernie Madoff, Black Swan, buy and hold, centralized clearinghouse, clean water, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial innovation, financial intermediation, fixed income, Flash crash, income inequality, index fund, information asymmetry, invisible hand, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

William White of the OECD and John Plender of the Financial Times would count among them. 6. Adam Smith was professor of moral philosophy at Glasgow University and is supposed to have fallen into a tanning pit while focusing on a conversation with a friend about economics. Author Isaac Asimov claimed, almost certainly apocryphally, that Gauss was interrupted in the middle of solving a mathematics problem to be told his wife was dying. “Tell her to wait a moment ’til I am done” was his reply. See http://en.wikipedia.org/wiki/Adam_Smith and http://en.wikipedia.org/wiki/Carl_Friedrich_Gauss. 7. Babylonian Talmud, Shabbos 31a. 8. En.Wikipedia.org/wiki/Adam_Smith. 9. Pitt speech on introducing his budget, February 17, 1792, quoted in John Kenneth Galbraith, A History of Economics (Hamish Hamilton, 1987), 61. 10. Adam Smith, The Wealth of Nations (Oxford University Press, 2008), bk 1, chap 2. 11.

7 In the Middle Ages, writings on economic matters could be found in manuals for confessors, who were concerned that prices charged by merchants were “just.” Adam Smith was a professor of moral philosophy who believed his most important book to be one entitled The Theory of Moral Sentiments.8 But he became most famous for a follow-up work in which he applied his mind to the world of commerce: The Wealth of Nations. Even in his own time, it was profoundly influential. Prime Minister William Pitt declared to the House of Commons in 1792 that Smith’s work would “furnish the best solution to every question connected to the history of commerce and with the system of political economy.”9 The Wealth of Nations contains two profoundly important observations, the first of which flew in the face of society’s preference for thinking about money in moral terms.

Usually, of course, it is the latter, since measures are rarely 100 percent accurate. But scientists have certain statistical methods by which they can determine how accurate their measurements, and therefore their predictions, are likely to be. One of the key figures in developing those statistical methods was the mathematician who graced the ten-euro note: Carl Friedrich Gauss. Gauss, born the year after Adam Smith published The Wealth of Nations, is recognized as one of the world’s greatest mathematicians. His most direct contributions were in mathematics and physics; he did not turn his attention to economics, which at the time was not considered a mathematical science. As director of the astronomical observatory at Göttingen, Germany, however, he was interested in astronomical measurements and, in particular, the distribution of errors in measurement.17 Simply put, he wanted to know how wrong he could be, how often.


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How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Robert Solow", Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Blythe Masters, Bretton Woods, British Empire, business cycle, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

remarks at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 25–27, 2005, available at www.kc.frb.org/publicat/sympos/2005/PDF/GD5_2005.pdf. 23 “The conventional wisdom . . .”: John Kenneth Galbraith, The Affluent Society (Boston: Mariner Books, 1998), 9. 2. ADAM SMITH’S INVISIBLE HAND 27 “It is striking to me . . .”: Alan Greenspan, The Age of Turbulence (New York: Penguin Press, 2007), 260. 27 “One man draws out . . .”: Adam Smith, The Wealth of Nations, Books 1–3 (New York: Penguin Books, 1997), 109–10. 28 In China between 1981 . . . : Poverty Data: A Supplement to World Development Indicators 2008, World Bank, December 2008. 28 “The shepherd, the sorter . . .”: Smith, Wealth of Nations, Books 1–3, 116–17. 29 iPod’s manufacturing chain: See Greg Linden, Kenneth L.

One of the first economists to put these arguments together was Adam Smith, a bookish Scot who was born in Kirkcaldy, a town on the Firth of Forth, north of Edinburgh, in 1723. Smith’s father, a lawyer and government official, died before his son’s birth. After being brought up by his mother, Smith attended Glasgow University, where he studied philosophy under Francis Hutcheson, one of the great figures of the Scottish Enlightenment. He moved on to Oxford and Edinburgh universities, before returning to Glasgow, where from 1752 to 1764 he taught moral philosophy, a catchall subject that included ethics, jurisprudence, and political economy. Resigning his professorship to take a higher-paying job tutoring a wealthy young aristocrat, the Duke of Buccleuch, Smith began writing his great opus, The Wealth of Nations, which was eventually published in 1776, the same year as the American Declaration of Independence.

Take the following passage from Microeconomics, a popular and generally first-rate college textbook by Robert S. Pindyck, of MIT, and Daniel L. Rubinfeld, of the University of California, Berkeley: General equilibrium theory, Pindyck and Rubinfeld write, “is the most direct way of illustrating the working of Adam Smith’s famous invisible hand, because it tells us that the economy will automatically allocate resources efficiently without the need for governmental regulatory control.” A defining feature of equilibrium theory, and the source of its appeal to many economists, is its mathematical elegance. For a hundred years or so, following the publication of The Wealth of Nations, economics remained an informal discipline: most of its major figures expressed their arguments in prose. As the nineteenth century progressed, this began to change. In 1826, in Mecklenburg, in part of what would become Germany, Johann Heinrich von Thünen, a prominent landowner, devised an equation for the rent that land yielded.


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Why We Work by Barry Schwartz

Atul Gawande, call centre, deskilling, Frederick Winslow Taylor, future of work, if you build it, they will come, invisible hand, job satisfaction, meta analysis, meta-analysis, Silicon Valley, The Wealth of Nations by Adam Smith, Toyota Production System

You can see this view operating in the “carrot and stick” approach that has dominated efforts to solve the world’s recent financial crisis. To prevent a financial meltdown from happening again, people argued, we needed to replace the “dumb” incentives that led to it with “smarter” ones. We had to get incentives right. Nothing else really mattered. This idea animated the inventor of the free market, Adam Smith. In The Wealth of Nations, published in 1776, he wrote that: It is in the inherent interest of every man to live as much at his ease as he can; and if his emoluments are to be precisely the same whether he does or does not perform some very laborious duty, to perform it in as careless and slovenly a manner that authority will permit. In other words, people work for pay—nothing more and nothing less.

The possibility that one’s views could be shaped by conceptions of justice or fairness, rather than self-interest, does not occur to most people. And yet they are. Empathy, and care and concern for the well-being of others, are routine parts of most people’s character. Yet they are in danger of being crowded out by exclusive concern for self-interest—a concern that is encouraged by the incentive-based structure of the workplace. Even Adam Smith understood that there was more to human nature than self-interest. The Wealth of Nations followed another book, The Theory of Moral Sentiments, in which he suggested that a certain natural sympathy for one’s fellow human beings provided needed restraints on what people would do if they were left free to “barter, truck, and exchange one thing for another.” Smith’s view, largely forgotten by modernity, was that efficient market transactions were parasitic on aspects of character developed through nonmarket social relations.

Psychological Science, 8 (1997): 21–7.* Schwartz, B. and K. Sharpe. Practical Wisdom. New York: Riverhead, 2010.* Sen, A. “Rational Fools.” Philosophy and Public Affairs, 6 (1976): 317–44. Skinner, B. F. (1953). Science and Human Behavior. New York: Macmillan.* Smith, A. The Theory of Moral Sentiments (Originally published in 1753). Oxford: Clarendon Press, 1976.* ——. The Wealth of Nations (Originally published in 1776). New York: Modern Library, 1937.* Snyder, M. and E. D. Tanke. (1977). “Social Perception and Interpersonal Behavior: On the Self-fulfilling Nature of Social Stereotypes.” Journal of Personality and Social Psychology, 35 (1977): 655–66. Sowell, T. A Conflict of Visions. New York: Morrow, 1987.* Springsteen, B. Interview in Rolling Stone, December 6, 1984: 18–22, 70.


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The Logic of Life: The Rational Economics of an Irrational World by Tim Harford

activist fund / activist shareholder / activist investor, affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, colonial rule, Daniel Kahneman / Amos Tversky, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, endowment effect, European colonialism, experimental economics, experimental subject, George Akerlof, income per capita, invention of the telephone, Jane Jacobs, John von Neumann, law of one price, Martin Wolf, mutually assured destruction, New Economic Geography, new economy, plutocrats, Plutocrats, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, spinning jenny, Steve Jobs, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, women in the workforce, zero-sum game

Nowadays four U.S. women: Data from Claudia Goldin’s 2006 Ely Lecture to the American Economic Association, published in American Economic Review, 2006, as “The Quiet Revolution That Transformed Women’s Employment, Education, and Family,” and Chiappori, Iyigun, and Weiss, “Investment in Schooling and the Marriage Market.” Delaying motherhood means big income gains: Amalia Miller is the young economist behind this very clever research. Her working paper is available at www.virginia.edu/economics/miller.htm. (His employer was): Biographical details of Adam Smith are from James Buchan, Adam Smith and the Pursuit of Perfect Liberty (London: Profile, 2006). But despite his travels: See David Warsh’s superb Knowledge and the Wealth of Nations (New York: Norton, 2006), chapter 3. “could scarce, perhaps”: Adam Smith, The Wealth of Nations, book 1, chapter 1, paragraph 3. Versions are available online, for instance at www.econlib.org/library/Smith/smWN.html. His adoring wife: Stephanie Coontz, Marriage: A History (New York: Viking, 2005). The roles were neatly reversed: “Americans’ Use of Time, 1965–6,” and “American Time Use Survey 2003,” from lecture notes by Yoram Weiss.

And they are perhaps delayed indefinitely: Betsey Stevenson and Justin Wolfers, “Marriage and Divorce: Changes and their Driving Forces,” NBER Working Paper 12944. Also Tyler Cowen, “Matrimony Has Its Benefits, and Divorce Has a Lot to Do with That,” The New York Times, April 19, 2007. “We know there exists something”: Interview with Justin Wolfers, June 2007. “The man whose whole life”: Adam Smith, The Wealth of Nations, book 5, chapter 1, par. 178, www.econlib.org/library/Smith/smWN.html. 4. WHY YOUR BOSS IS OVERPAID Dilbert: This Dilbert cartoon was reprinted in Edward Lazear, Personnel Economics for Managers (New York: Wiley, 1998). He reckoned that 30,000: Tim Harford, “Odd Numbers,” Financial Times, April 23, 2005. Levitt had also had a disagreement: Conversations with Steven Levitt and, separately, Stephen Dubner, March and April 2005.

A nice summary is Joel Waldfogel, “Master of the Island: Which Country is the Best Colonizer?” Slate, October 19, 2006, www.slate.com/id/2151852/. Another good popular account is “Economics Focus: Winds of Change,” Economist, November 2, 2006. “Nobody ever saw a dog”: Smith, The Wealth of Nations, book 1, chapter 2. Computer-based simulations: See “Homo Economicus?” Economist, April 7, 2005, and Richard D. Horan, Erwin Bulte, and Jason F. Shogren, “How Trade Saved Humanity from Biological Exclusion: An Economic Theory of Neanderthal Extinction,” Journal of Economic Behavior & Organization 58, no. 1(September 2005): 1–29. Neanderthals, apparently, did not: “Mrs. Adam Smith,” Economist, December 9, 2006. Also Steven L. Kuhn and Mary C. Stiner, “What’s a Mother to Do? The Division of Labor Among Neanderthals and Modern Humans in Eurasia,” Current Anthropology 47, no. 6(December 2006): 953–80, www.journals.uchicago.edu/CA/journal/issues/v47n6/066001/066001.web.pdf.


pages: 850 words: 254,117

Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low cost carrier, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, road to serfdom, Ronald Reagan, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Vanguard fund, War on Poverty

{985} Sir James Steuart, The Works, Political, Metaphysical, and Chronological, of the Late Sir James Steuart of Coltness, Bart (London: T. Cadell and W. Davies, Strand, 1805), Volume I, p. 337. {986} Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), p. 79. {987} Ibid., p. 250. {988} Ibid., p. lvii. {989} Ibid., p. 325. {990} Ibid., p. 900. {991} Ibid., pp. 80–81, 365; Adam Smith, The Theory of Moral Sentiments (Indianapolis: Liberty Classics, 1976), p. 337. {992} Adam Smith, The Wealth of Nations, p. 423. {993} Sir James Steuart, The Works, Volume I, pp. 4, 15, 73, 88. {994} Adam Smith, The Wealth of Nations, p. 435. {995} David Ricardo, The Works and Correspondence of David Ricardo, Volume VII: Letters 1816–1818, edited by Piero Sraffa (New York: Cambridge University Press, 1952), p. 372

John Maynard Keynes{981} People have been talking about economic issues, and some writing about them, for thousands of years, so it is not possible to put a specific date on when the study of economics began as a separate field. Modern economics is often dated from 1776, when Adam Smith wrote his classic, The Wealth of Nations, but there were substantial books devoted to economics at least a century earlier, and there was a contemporary school of French economists called the Physiocrats, some of whose members Smith met while traveling in France, years before he wrote his own treatise on economics. What was different about The Wealth of Nations was that it became the foundation for a whole school of economists who continued and developed its ideas over the next two generations, including such leading figures as David Ricardo (1772–1823) and John Stuart Mill (1806–1873), and the influence of Adam Smith has to some extent persisted on to the present day. No such claim could be made for any previous economist, despite many people who had written knowledgeably and insightfully on the subject in earlier times.

The promotion of imperialism and even slavery was acceptable to some mercantilists for the same reason. The “nation” to them did not mean a country’s whole population. Thus Sir James Steuart could write in 1767 of “a whole nation fed and provided for gratuitously” by means of slavery.{985} Although slaves were obviously part of the population, they were not considered to be part of the nation. CLASSICAL ECONOMICS Adam Smith Within a decade after Sir James Steuart’s multi-volume mercantilist treatise, Adam Smith’s The Wealth of Nations was published and dealt a historic blow against mercantilist theories and the whole mercantilist conception of the world. Smith conceived of the nation as all the people living in it. Thus you could not enrich a nation by keeping wages down in order to export. “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,” Smith said.{986} He also rejected the notion of economic activity as a zero-sum process, in which one nation loses what another nation gains.


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How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky

"Robert Solow", banking crisis, basic income, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, creative destruction, David Ricardo: comparative advantage, death of newspapers, financial innovation, Francis Fukuyama: the end of history, full employment, happiness index / gross national happiness, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, market clearing, market fundamentalism, Paul Samuelson, profit motive, purchasing power parity, Ralph Waldo Emerson, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, Veblen good, wage slave, wealth creators, World Values Survey, zero-sum game

It was retained, if at all, only for pathological or criminal forms of acquisition such as hoarding or swindling.Meanwhile, ordinary commercial activity was described in language suggestive of a benign if unheroic pastime. “There are few ways in which a man can be more innocently employed than in getting money,” was how Dr. Johnson famously put it. His French contemporary Montesquieu talked of the douceur of commerce.14 Once money-making had been stripped of its ethical opprobrium, it became open to treatment in terms of cause and effect. Hume’s friend, the Scottish philosopher Adam Smith, took the lead. The Wealth of Nations, his masterpiece of 1776, presents humans as driven by a natural desire for self-improvement, which under conditions of free competition leads them “as if by an invisible hand” to promote the public well-being. Newton’s mechanical science of nature was thereby extended to economic relations, with self-interest in the role of gravity. This was a revolutionary invention. Traditional morality had conceived of society as an enterprise devoted to the common good.

In effect, the governments of Reagan and Thatcher handed economies back to the businessmen. The role of the state in management, ownership, regulation, allocation, and distribution was drastically pared back. Governments gave up attempts to steer market forces to desirable social outcomes, limiting themselves to maintaining framework conditions for successful market performance. The wealth of nations would be made to grow faster by releasing acquisitiveness from its communal restraints, in a reprise of the arguments first advanced by Adam Smith and his followers. In this kind of world there is no reason why capitalism should ever end, provided everything goes according to plan. Keynes’s notion of satiety has no place: the progress of the system will create new wants and stimulate positional competition without limit. And any observed tendency for rich societies to rest on their laurels by working and consuming less can be countered by the logic of globalization and the stimulus of additional income inequality.

Charles Baudelaire, Journaux intimes (Paris: Mercure de France, 1938), p. 61. 6. John Maynard Keynes, The General Theory of Employment, Interest, and Money, The Collected Writings of John Maynard Keynes, vol. 7 (Cambridge: Cambridge University Press, 1973), p. 374. 7. IMSciences.net, accessed 09/09/11. 8. H. J. Johnson, “The Political Economy of Opulence,” Canadian Journal of Economics and Political Science, vol. 26, pt. 4 (1960), p. 554. 9. Adam Smith, The Wealth of Nations (Lawrence, Kan.: Digireads.com, 2009; first publ. 1759), p. 40; Alfred Marshall, Principles of Economics (London: Prometheus Books, 1920), p. 1; Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1932), p. 16. 10. Keynes, Essays in Persuasion, p. 332. CHAPTER 1. KEYNES’S MISTAKE 1. Quoted in Robert Skidelsky, John Maynard Keynes: The Economist as Saviour 1920–1937 (London: Macmillan, 1992), pp. 72, 235. 2.


Capitalism, Alone: The Future of the System That Rules the World by Branko Milanovic

"Robert Solow", affirmative action, Asian financial crisis, assortative mating, barriers to entry, basic income, Berlin Wall, bilateral investment treaty, Black Swan, Branko Milanovic, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, colonial rule, corporate governance, creative destruction, crony capitalism, deindustrialization, dematerialisation, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, ghettoisation, gig economy, Gini coefficient, global supply chain, global value chain, high net worth, income inequality, income per capita, invention of the wheel, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, low skilled workers, Lyft, means of production, new economy, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, post-materialism, purchasing power parity, remote working, rent-seeking, ride hailing / ride sharing, Silicon Valley, single-payer health, special economic zone, The Wealth of Nations by Adam Smith, Thorstein Veblen, uber lyft, universal basic income, Vilfredo Pareto, Washington Consensus, women in the workforce, working-age population, Xiaogang Anhui farmers

Around 2005, Africa’s contribution to global inequality was about 10 percent. That number is bound to rise with the increase in population, so the evolution of global inequality will increasingly depend on what is happening in Africa. 38. Adam Smith, The Wealth of Nations, book 4, chap. 7. Appendix A 1. “The colony of a civilised nation which takes possession either of a waste country, or of one so thinly inhabited that the natives easily give place to the new settlers, advances more rapidly to wealth and greatness than any other human society” (Adam Smith, The Wealth of Nations, book 4, chap. 7). 2. “The British Rule in India,” New York Tribune, June 25, 1853, in Marx (2007, 218–219). 3. “The Future Results of British Rule in India,” New York Tribune, August 8, 1853, in Marx (2007, 220). 4. “Capitalism has grown into a world system of colonial oppression and of the financial strangulation of the overwhelming majority of the people of the world by a handful of ‘advanced’ countries” (Lenin, Collected Works, 19:87, quoted in Sweezy [1953, 24]). 5.

This is a huge question that has acquired additional importance in the past two decades due to the rise of China, the evident contrast between the organization of Chinese and Western economies, and (not least) the much improved historical data we now have. In order to answer that question and look at the prospects of political capitalism, it would be useful to consider an interesting approach suggested by Giovanni Arrighi in Adam Smith in Beijing: Lineages of the Twenty-First Century (2007). Smithian and Marxian capitalisms Arrighi starts from a dichotomy that I think he was the first to have defined, in a series of articles, between what he calls a Smithian “natural” path of development of capitalism and a Marxian “unnatural” path. Smith’s natural path, “the natural progress of opulence,” in the terminology of The Wealth of Nations, is that of a market economy of small producers that grows, through division of labor, from agriculture into manufacturing and only later goes into domestic trade and eventually long-distance foreign trade.

“But how destructive soever this system may appear, it could never have imposed upon so great a number of persons, nor have occasioned so general an alarm among those who are the friends of better principles, had it not in some respects bordered upon the truth” (The Theory of Moral Sentiments, part 7, section 2, chap. 4). 4. David Wootton writes: “The two works [The Theory of Moral Sentiments and The Wealth of Nations] do not fit quite so neatly together, for one is about how we ought to behave toward our family, friends, and neighbors (who evoke our benevolent feelings), and the other about how we should interact with strangers we meet in the marketplace (to whom we owe no particular duty of care—caveat emptor is an attitude we can legitimately adopt to strangers, but not to family, friends, and neighbors).… [There is] a tension between the amoral world of market forces, and the moral world of human interactions. The Wealth of Nations establishes the extent to which our choices are constrained by market forces, and these constraints limit our opportunities for admirable moral behavior” (Wootton 2018, 174–175; my emphasis). 5.


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The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor by William Easterly

"Robert Solow", air freight, Andrei Shleifer, battle of ideas, Bretton Woods, British Empire, business process, business process outsourcing, Carmen Reinhart, clean water, colonial rule, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, Deng Xiaoping, desegregation, discovery of the americas, Edward Glaeser, en.wikipedia.org, European colonialism, Francisco Pizarro, fundamental attribution error, germ theory of disease, greed is good, Gunnar Myrdal, income per capita, invisible hand, James Watt: steam engine, Jane Jacobs, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, M-Pesa, microcredit, Monroe Doctrine, oil shock, place-making, Ponzi scheme, risk/return, road to serfdom, Silicon Valley, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, Thomas L Friedman, urban planning, urban renewal, Washington Consensus, WikiLeaks, World Values Survey, young professional

He spoke of “the pretious (sic) right of private judgement for the sake of which our forefathers kicked out the Pope and the Pretender.”43 (The “Pretender” was James, whose father, James II of England, was deposed in 1688 for his Catholicism. The son, also a Catholic, had unrealized pretensions of regaining his father’s throne as James III.) Smith’s leading success story was the American colonies (whose side he took in their dispute with the Crown just as the Wealth of Nations was published). Their secret was “plenty of good land, and liberty to manage their own affairs their own way.” The word liberty appears eighty-five times in the Wealth of Nations. As one biographer, Nicholas Phillipson, put it, Smith’s life’s work was “a call to his contemporaries to take moral, political and intellectual control of their lives.”44 In a remarkable and little-known paragraph criticizing Quesnay, Smith is starting to see that a free political system could also have an Invisible Hand: [Quesnay] seems not to have considered, that in the political body, the natural effort which every man is continually making to better his own condition, is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political economy. . . .

James Ferguson, The Anti-Politics Machine: Development, Depoliticization, and Bureaucratic Power in Lesotho (Minneapolis: University of Minnesota Press, 1994). 4. Ian Simpson Ross, The Life of Adam Smith, second edition (Oxford: Oxford University Press, 2010), Kindle edition, locations 1231–39. 5. Ross, Life of Adam Smith, 6131–39. 6. Nicholas Phillipson, Adam Smith: An Enlightened Life (New Haven, CT: Yale University Press, 2010), Kindle edition, location 727. 7. Adam Smith, Wealth of Nations (Beijing, China: Dolphin Books, 2008), Kindle edition, locations 6696–98. There is something evocative and/or ironic about a Chinese company producing an electronic edition of Adam Smith sold on Amazon for $1.00. Emphasis added. 8. Ibid., 212–14. 9. Adam Smith, The Theory of Moral Sentiments (MacMay, 2008), Kindle edition, location 3585; http://www.amazon.com/dp/B001NPDN46/ref=rdr_kindle_ext_tmb. 10.

Some on the right have the misunderstanding that Smith gives a blanket endorsement to all profits by the existing businessmen. Actually, Smith held many negative views about both the rich and businessmen. In his first classic, The Theory of Moral Sentiments, published in 1759, Smith spoke of the rich as a “few lordly masters,” consumed by “vain and insatiable desires,” not to mention their “natural selfishness and rapacity.”9 As for businessmen, Smith in The Wealth of Nations spoke of “the mean rapacity, the monopolizing spirit, of merchants and manufacturers,” which sounds like something he had personally observed in Glasgow. His whole work he described as a “very violent attack” targeting “the wretched spirit of monopoly.” Another famous statement of Smith’s further develops this: “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.”10 Greedy merchants were, for Smith, far from concerned about promoting general well-being.


The Ages of Globalization by Jeffrey D. Sachs

Admiral Zheng, British Empire, Cape to Cairo, colonial rule, Columbian Exchange, Commentariolus, coronavirus, COVID-19, Covid-19, cuban missile crisis, decarbonisation, demographic transition, Deng Xiaoping, domestication of the camel, Donald Trump, en.wikipedia.org, endogenous growth, European colonialism, global supply chain, greed is good, income per capita, invention of agriculture, invention of gunpowder, invention of movable type, invention of the steam engine, invisible hand, Isaac Newton, James Watt: steam engine, job automation, John von Neumann, joint-stock company, Louis Pasteur, low skilled workers, mass immigration, Nikolai Kondratiev, out of africa, packet switching, Pax Mongolica, precision agriculture, profit maximization, profit motive, purchasing power parity, South China Sea, spinning jenny, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade, Turing machine, Turing test, urban planning, Watson beat the top human players on Jeopardy!, wikimedia commons

Spain and Portugal each held some Asian colonies as well, including the Philippines under Spain and eastern Timor under Portugal. 6.8 World Empires and Selected Nations, 1830 Much of the ensuing drama of nineteenth-century economic development would take place on the mainland of Europe, which pioneered the new age of industrial globalization. Adam Smith’s Summation of the Age of Global Empire Adam Smith, the great inventor of modern economic thought, living in Scotland in the eighteenth century, published his magnum opus, The Wealth of Nations, in 1776. As a great humanist, he observed the consequences of globalization with a globalist perspective rather than British partiality. (In his own work on moral sympathy, Smith spoke about the “impartial spectator” as the vantage point for moral reasoning.) This is what Smith had to say about this remarkable fourth age of globalization.

Private businesses, drunk with greed, hired private armies, enslaved millions, bribed their way to privileged political status at home and abroad, and generally acted with impunity. But even beyond the private greed, it was an age of conquest and unchecked competition among Europe’s powers. The world beyond the oceans was up for grabs, and little would hold back the rapaciousness that was unleashed as a result. Adam Smith’s masterwork, The Wealth of Nations, provided a template for riches: global trade as the spur for specialization and rising productivity. Smith’s recipe worked beyond his wildest imagination. As we shall see in the next phase of globalization, productivity began to rise rapidly and persistently as new inventions expanded the market and thereby the incentives for even more inventions. The process of self-feeding growth was under way.

The first is sustainable development, meaning the holistic approach to governance that combines economic, social, and environmental objectives. The second is the social-democratic ethos, meaning an inclusive and participatory approach to political and economic life. The third is subsidiarity, meaning that we solve problems at the proper level of governance. The fourth is a reformed United Nations. The fifth is a world safe for diversity. Sustainable Development In The Wealth of Nations, Adam Smith largely defined the ethos of the Industrial Age: the quest for national wealth. Since the early nineteenth century, sovereign governments have competed for wealth and power through industrialization and technological advancement. A global-scale market economy emerged in which privately owned companies aggressively pursue profits on a global scale. The result has been two centuries of economic growth, albeit punctuated by wars and economic crises.


pages: 340 words: 91,387

Stealth of Nations by Robert Neuwirth

accounting loophole / creative accounting, big-box store, British Empire, call centre, collective bargaining, corporate governance, full employment, Hernando de Soto, illegal immigration, income inequality, informal economy, invisible hand, Jane Jacobs, jitney, Johannes Kepler, joint-stock company, Joseph Schumpeter, megacity, microcredit, New Urbanism, Pepto Bismol, pirate software, profit motive, Shenzhen was a fishing village, Simon Kuznets, special economic zone, The Wealth of Nations by Adam Smith, thinkpad, upwardly mobile, Vilfredo Pareto, yellow journalism

Part-time work, a variety of self-employment schemes, consulting, moonlighting, income patching. By 2020, the OECD projects, two-thirds of the workers of the world will be employed in System D. There’s no multinational, no Daddy Warbucks or Bill Gates, no government that can rival that level of job creation. Given its size, it makes no sense to talk of development, growth, sustainability, or globalization without reckoning with System D. Adam Smith understood this intuitively back in 1776, when he published The Wealth of Nations. As Smith wrote, “The whole consumption of the inferior ranks of people, or of those below the middling rank, it must be observed, is in every country much greater, not only in quantity, but in value, than that of the middling and of those above the middling rank.” Despite this, most economists don’t recognize System D as a part of the legitimate financial order.

It may have sounded lunatic to his contemporaries, but Mandeville’s argument amounts to a plea for government intervention and regulation (you might call him a closet Keynesian) of an industry gone awry. Even the simple rhymes of The Grumbling Hive show that Mandeville favored some government intervention in the market: “Vice is beneficial found / when it’s by justice lopp’d and bound.” Adam Smith, too, acknowledged that merchants could be expected to manipulate trade for their own gain. “The interest of the dealers, however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public,” he wrote in The Wealth of Nations, adding that “the proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the scrupulous, but with the most suspicious attention.

His idea was that, if money depreciated over time, there would be no reason to hoard it. So, by this neat trick, Gesell proposed to encourage people to continually spend, and this stimulus in consumption of all sorts (two thumbs up from Bernard Mandeville!) would naturally force production to increase, thus creating jobs and sharing the wealth. Another thirty years on—a hundred and sixty years after Adam Smith published The Wealth of Nations—John Maynard Keynes offered a frank diagnosis of the problems of the free-market system in the last chapter of his 1936 book The General Theory of Employment, Interest and Money: “The outstanding faults of the economic society in which we live,” he wrote, “are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and income.” Keynes believed that government could provide the leavening, leveling factor, investing in and stimulating production in order to create jobs and spur consumption, and in the process leveling the huge inequities in wages and wealth.


pages: 290 words: 76,216

What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

It also cuts itself off from an important part of reality – the fact that humans have always struggled with moral choices. It also makes the problem of scarcity insoluble, as we shall see. Economics was not always as ethically colour-blind as it is now. Historically, there are two main definitions of the subject. The first makes it the study of wealth; the second the study of choice. The first dates from Adam Smith (1723–1790) who called his famous 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations. In discussing the nature of wealth, Smith set out to controvert the ‘erroneous opinion’ that wealth consists of money (gold and silver). Rather, he defined it as the ‘annual produce of the land and labour of society’.1 Wealth arises from the production and exchange of ‘useful’ things like provisions, houses, clothes, and furniture. Wealth is a means to comfort.

The Hidden Persuaders, New York: D. McKay Co. Robbins, Lionel (1935). An Essay on the Nature and Significance of Economic Science, 2nd ed., London: Macmillan. Sahlins, Marshall (1972). Stone Age Economics, New York: de Gruyter. Sen, Amartya (1981). Poverty and Famines: An Essay on Entitlement and Deprivation, Oxford: Oxford University Press. Smith, Adam (1904 [1776]). An Inquiry into the Nature and Causes of the Wealth of Nations, London: Methuen. Veblen, Thorstein (1899). The Theory of the Leisure Class, New York: Macmillan. Chapter 3 Acemoglu, Daron, Johnson, Simon and Robinson, James (2001). ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, American Economic Review, Vol. 91 (5): 1369–1401. Amsden, Alice (1992). Asia’s Next Giant: South Korea and Late Industrialization, Oxford: Oxford University Press.

Money and Government, London: Allen Lane; New Haven: Yale University Press. Skidelsky, Robert (2005). ‘Keynes, Globalization and the Bretton Woods Institutions in the Light of Changing Ideas about Markets’, World Economics, Vol. 6 (1): 1–16. Skidelsky, Robert and Craig, Nan (eds.) (2016). Who Runs the Economy?: The Role of Power in Economics, London: Palgrave Macmillan. Smith, Adam (1904 [1776]). An Inquiry into the Nature and Causes of the Wealth of Nations, London: Methuen. Stiglitz, Joseph E. (1993). ‘Post Walrasian and Post Marxian Economics’, Journal of Economic Perspectives, Vol. 7 (1): 109–114. Streeck, Wolfgang (2016). How Will Capitalism End? Essays on a Failing System, London: Verso. Tugendhat, Christopher (1972). The Multinationals, New York: Random House. Varoufakis, Yanis (2017). Adults in the Room, London: The Bodley Head. Chapter 10 Blaug, Mark (2001).


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Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

Earth itself, however, is a closed system because almost no matter leaves or arrives on this planet: energy from the sun may flow through it, but materials can only cycle within it.22 Redrawing the economy as an open subsystem of the closed Earth system is the major conceptual shift introduced by ecological economists such as Herman Daly in the 1970s. And it’s a paradigm shift that has become increasingly important, given the economy’s ever-growing scale. When Adam Smith published The Wealth of Nations in 1776, there were fewer than one billion people alive and, in dollar terms, the size of the global economy was 300 times smaller than it is today. When Paul Samuelson published Economics in 1948 there were not yet three billion people on Earth and the global economy was still ten times smaller than it is today. In the twenty-first century we have left behind the era of ‘Empty World’, when the flow of energy and matter through the global economy was small in relation to the capacity of nature’s sources and sinks.

THE HOUSEHOLD, which is core – so value its contribution The Circular Flow diagram depicted labour appearing – hey presto! – fresh and ready for work each day at the office or factory door. So who cooked, cleaned up, and cleared away to make that possible? When Adam Smith, extolling the power of the market, noted that, ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner’, he forgot to mention the benevolence of his mother, Margaret Douglas, who had raised her boy alone from birth. Smith never married so had no wife to rely upon (nor children of his own to raise). At the age of 43, as he began to write his opus, The Wealth of Nations, he moved back in with his cherished old mum, from whom he could expect his dinner every day. But her role in it all never got a mention in his economic theory, and it subsequently remained invisible for centuries.28 As a result, mainstream economic theory is obsessed with the productivity of waged labour while skipping right over the unpaid work that makes it all possible, as feminist economists have made clear for decades.29 That work is known by many names: unpaid caring work, the reproductive economy, the love economy, the second economy.

His portrait is painted in words and equations, not in pictures. If it were to be drawn, however, he would have to look something like this: standing alone, money in hand, calculator in head, and ego in heart. Rational Economic Man: the human character at the heart of mainstream economic theory. Where did this infamous character come from? His most intimate early portrait was created by Adam Smith in two major works, his 1759 Theory of Moral Sentiments and his 1776 book known as The Wealth of Nations. Today Smith is best remembered for having noted the human propensity to ‘truck, barter and exchange’ and the role of self-interest in making markets work.2 But although he believed self-interest was, ‘of all virtues that which is most helpful to the individual’, Smith also believed it was far from the most admirable of our traits, knocked off that top spot by our ‘humanity, justice, generosity and public spirit … the qualities most useful to others’.


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How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present by Thomas J. Dilorenzo

banking crisis, British Empire, business cycle, collective bargaining, corporate governance, corporate social responsibility, financial deregulation, Fractional reserve banking, Hernando de Soto, income inequality, invisible hand, Joseph Schumpeter, laissez-faire capitalism, means of production, medical malpractice, Menlo Park, minimum wage unemployment, Norman Mailer, plutocrats, Plutocrats, price stability, profit maximization, profit motive, Ralph Nader, rent control, rent-seeking, Robert Bork, Ronald Coase, Ronald Reagan, Silicon Valley, statistical model, The Wealth of Nations by Adam Smith, transcontinental railway, union organizing, Upton Sinclair, wealth creators, working poor, Works Progress Administration, zero-sum game

Truth, in short, is not on the side of the anticapitalists. The more Americans come to understand the truth about capitalism, the more reason they will have to be optimistic for the future of their country. ———— NOTES INTRODUCTION: THE UNTOLD STORY 1. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Random House, 1937), 422. 2. Neela Banerjee and David Firestone, “New Kind of Electricity Market Strains Old Wires Beyond Limits,” New York Times, August 24, 2003, 1. CHAPTER ONE: WHAT IS CAPITALISM? 1. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Random House, 1937), 422. 2. Ludwig von Mises, Liberalism: In the Classical Tradition (San Francisco: Cobden Press, 1985), 32. 3. Joseph Schumpeter, Capitalism, Socialism, and Democracy, 3rd ed. (New York: Harper and Row, 1962), 62. 4.

Of course, nearly every one of Marx’s assumptions (government would wither away under communism, capitalism would make workers poorer, etc.) turned out to be wrong, including this one. Free-market capitalism, based on private property and peaceful exchange, is the source of civilization and human progress. Human beings have a natural propensity to “truck, barter, and exchange,” as Adam Smith said more than two centuries ago, and free-market capitalism is by far the best-known means by which this can be accomplished. In his famous treatise The Wealth of Nations, Smith neatly summed up the essence of how capitalism works: “Give me that which I want, and you shall have this which you want.”1 In other words, commerce is what economists call a “positive-sum game.” The act of buying and selling always benefits both buyer and seller; otherwise they wouldn’t trade with each other.

But such a claim unfairly lumps together those who succeeded on the strength of their own talents, intelligence, and innovations and those who did in fact gain an unfair advantage over competitors (and consumers). The true capitalists—in the railroad industry and other industries—were the so-called market entrepreneurs. In contrast, the real robber barons—the political entrepreneurs—were not capitalists but corporatists, or, to use a term that Adam Smith employed in The Wealth of Nations, mercantilists. These political entrepreneurs gained an unfair advantage through special privileges created by government intervention (direct subsidies, regulations that harmed their competitors, and much more). The critics are right to condemn these business/government partnerships, but they are wrong to label them as capitalism. Every student of American business history knows that the late nineteenth century was a period of “rampant monopolization,” when trusts operated by the likes of John D.


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The Fair Trade Scandal: Marketing Poverty to Benefit the Rich by Ndongo Sylla

British Empire, carbon footprint, corporate social responsibility, David Ricardo: comparative advantage, deglobalization, Doha Development Round, Food sovereignty, global value chain, illegal immigration, income inequality, income per capita, invisible hand, Joseph Schumpeter, labour mobility, land reform, market fundamentalism, mass immigration, means of production, Mont Pelerin Society, Naomi Klein, non-tariff barriers, offshore financial centre, open economy, Philip Mirowski, plutocrats, Plutocrats, price mechanism, purchasing power parity, Ronald Reagan, Scientific racism, selection bias, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, transatlantic slave trade, trickle-down economics, Washington Consensus, zero-sum game

This indicator shows for instance how many ‘men, women and children have to work’ in order for consumers of the North to easily access common consumption goods such as denim trousers, MP3 players, etc. For further details, see: http://slaveryfootprint. org 3. Schumpeter (2006 [1954]: 179–80) wrote: But no matter what he actually learned or failed to learn from predecessors, the fact is that the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776 […]. And it was Adam Smith’s good fortune that he was thoroughly in sympathy with the humors of his time. He advocated the things that were in the offing, and he made his analysis serve them. Needless to insist on what this meant both for performance and success: where would the Wealth of Nations be without free trade and laissez-faire? Also, the ‘unfeeling’or ‘slothful’ landlords who reap where they have not sown, the employers whose every meeting issues in conspiracy, the merchants who enjoy themselves and let their clerks and accountants do the work, and the poor laborers who support the rest of society in luxury – these are all important parts of the show.

It seems that it is in the framework of this debate that the opposition between free trade and protectionism was structured. On this point, the story begins with the tradition of free trade. Its influence has grown consistently since the Scottish economist and philosopher Adam Smith, considered as the founding father of modern economic science, published in 1776 his work entitled An Inquiry into the Nature and Causes of the Wealth of Nations. Just as the official history of capitalism conveys the false theory that free trade was the strategy followed in the past by countries that are rich today, the official history of political economy as written by the ‘victors’ also teaches us that Adam Smith is the founding father of the free trade tradition. Smith certainly set the standard of economic liberalism. For him to be seen as a wholehearted partisan of free trade however, not to mention the founding father of this tradition, a good deal of nit-picking and rhetorical contortions must have been undertaken by eminent historians of political economy.

Its protagonists thus feel that by promoting the adoption of new modes of consumption, it will be possible to reach this end. This approach was criticised by some authors due to its ‘neo-Smithian’ vision of the capitalist system (Fridell, 2007). In the language of authors in the Marxist lineage, this label symbolises the vision initially developed by Adam Smith, according to which capitalism would have ‘originated’ and been structured by a division of labour based on market exchange (Brenner, 1977). In the Wealth of Nations, Adam Smith demonstrates that the division of labour is a source of wealth creation – it increases labour productivity – and therefore of economic growth. He also underscores that the division of labour is limited by the size of the market. Thus, the development of trade is meant to increase labour productivity through an efficient division of labour.


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Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder

"Robert Solow", affirmative action, Albert Einstein, Bernie Madoff, British Empire, business cycle, capital controls, cleantech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, knowledge economy, labor-force participation, longitudinal study, margin call, Mark Zuckerberg, means of production, medical malpractice, minimum wage unemployment, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, post-industrial society, price stability, Ralph Nader, rent control, Robert Gordon, Ronald Reagan, Silicon Valley, Simon Kuznets, skunkworks, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game

Capitalism does all the things that advocates of big government claim they are trying to do: uplift the poor; expand our sense of humanity; break down xenophobic barriers between groups of people and between nations; encourage cooperation, altruism, and creativity; and let everyone, as Abraham Lincoln put it, improve their lot in life. We should glorify—or at least advocate and defend—capitalism and capitalists for moral reasons, not just material ones. The abundances they create come about precisely because of capitalism’s moral foundations. This profound, basic understanding is what makes George Gilder’s Wealth & Poverty one of the great books of Western civilization, on par with Adam Smith’s The Wealth of Nations and the late Jude Wanniski’s The Way the World Works. The original edition was published in the early 1980s when, like today, people had profound doubts about capitalism. Gilder’s opening words were, “The most important event in the recent history of ideas is the demise of the socialist dream.” Alas, “The second most important event... is the failure of capitalism to win a corresponding triumph.”

CHAPTER TWO THE ECONOMY OF FRUSTRATION THE BELIEF THAT THE good fortune of others is also finally one’s own does not come easily or invariably to the human breast. It is, however, a golden rule of economics, a key to peace and prosperity, a source of the gifts of progress. It is the belief that finally confounded the predatory economics of mercantilism, in which nations used regulation and beggar-thy-neighbor trade campaigns to gather surpluses and bullion. It was this golden rule that inspired the first great book of economics, The Wealth of Nations, by Adam Smith. It was this belief that David Hume proclaimed in 1742, at the end of his essay “Of the Jealousy of Trade”: “I shall therefore venture to acknowledge, that, not only as a man, but as a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself. I am at least certain that all nations would flourish more [with] such enlarged and benevolent sympathies toward each other.”1 The golden rule finds its scientific basis in the mutuality of gains from trade, in the demand generated by the engines of supply, in the expanded opportunity created by growth, in the usual and still growing economic futility of war.

The problem of contemporary capitalism lies not chiefly in a deterioration of physical capital, but in a persistent subversion of the psychological means of production—the morale and inspiration of economic man—undermining the very conscience of capitalism: the awareness that one must give in order to get, supply in order to demand. The trend seems to have begun in politics. In fact, our current situation recalls the world in which economic science gained its first triumphs. This was the age of mercantilism, a time of similar hypertrophy of politics, when Adam Smith reproached the governments of Europe for believing that the power of demand, in the form of accumulated gold, constituted the source of wealth. In The Wealth of Nations Smith argued that real riches came from the power of production and supply, not bullion collected through a trade surplus. But during the two centuries since Smith won this initial victory for supply-side economics, the demand side has all too often triumphed. The problem begins in political philosophy, in the theory of politics and public opinion.


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Owning the Earth: The Transforming History of Land Ownership by Andro Linklater

agricultural Revolution, anti-communist, Anton Chekhov, Ayatollah Khomeini, Big bang: deregulation of the City of London, British Empire, business cycle, colonial rule, Corn Laws, corporate governance, creative destruction, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, facts on the ground, Francis Fukuyama: the end of history, full employment, Gini coefficient, Google Earth, income inequality, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kibera, Kickstarter, land reform, land tenure, light touch regulation, market clearing, means of production, megacity, Mikhail Gorbachev, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mortgage debt, Northern Rock, Peace of Westphalia, Pearl River Delta, plutocrats, Plutocrats, Ponzi scheme, profit motive, quantitative easing, Ralph Waldo Emerson, refrigerator car, Right to Buy, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, spinning jenny, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade route, transatlantic slave trade, transcontinental railway, ultimatum game, wage slave, WikiLeaks, wikimedia commons, working poor

Irritated, the prince demanded, “Then what would you do if you were king?” Quesnay’s reply was the classic physiocrate description of government’s role: “Nothing.” Adam Smith owed the theory of laissez-faire economics to the physiocrates, and he owed some at least of his understanding about the behavior of money to Cantillon. But The Wealth of Nations was more than the sum of its parts. It extended the market-driven motivations of capitalist agriculture to industry and trade, and yoked them to the financial systems of mercantile capitalism. And it based its analysis of the wealth-producing capacity of free-market economics on the pragmatic reality that human nature is encouraged by the prospect of profit and discouraged by the experience of injustice. The Wealth of Nations was not published until 1776, seventeen years after The Theory of Moral Sentiments, but the sociability of the Theory provided its essential springboard, just as Hobbes’s delineation of insatiable greed was the necessary starting point of Leviathan.

In fact the 1873 recession proved to be of critical importance to those parts of the earth occupied by private property economies. By the time its effects had cleared away, it was apparent that the theory of free-enterprise capitalism described by Adam Smith had a flaw. Rural capitalism had offered Smith a model of a free enterprise system based on a myriad of small producers competing on price and delivery in a market where overproduction of one product brought a fall in price and profit, leading either to more efficient production or to a switch to a more profitable item. In The Wealth of Nations, he noted that it was fully working in England, reasonably developed in Scotland, evolving in France, and well-grounded in colonial America. Although he did not predict the egalitarian nature of the societies that followed the expansion of private property, his theory did demand the absence of any artificial barriers hindering access to capital, credit, and productive capacity.

McCloskey (Cambridge: Cambridge University Press, 1994) second edition; Julian Roche, The International Wool Trade (Cambridge: Woodhead, 1995); Robert C. Allen, “The Price of Freehold Land and the Interest Rate in the Seventeenth and Eighteenth Centuries,” The Economic History Review, New Series, 41, no. 1 (Feb. 1988): 33–50; Robert C. Allen, “The High Wage Economy of Pre-Industrial Britain,” www.helsinki.fi/iehc2006/papers2/Allen77.pdf. “the natural fertility of the soil”: Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations (New York: Random House, 1937), bk. 3, ch. IV, p. 133, http://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/index.htm. For the early development of mercantile capitalism, see Niall Ferguson, The Ascent of Money: A Financial History of the World (London and New York: Penguin, 2008). “This oligarchical power”: Ibid., 71. For the economy of the Netherlands in the seventeenth and eighteenth centuries, see Simon Schama, An Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Period (London: Collins, 1987); Jan de Vries, The Dutch Rural Economy in the Golden Age, 1500–1700 (New Haven, CT: Yale University Press, 1974).


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The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, Commodity Super-Cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

This chapter explores how our morals are linked to our emotions, how they evolve, and how things can go wrong.1 WANTS AND ‘OUGHTS’ The glib supporters of capitalism who argue that the end justifies the means invoke Adam Smith’s famous proposition in The Wealth of Nations that the pursuit of self-interest leads to the common good. ‘Greed is good’ became the intellectual underpinning for the zeal of the Reagan–Thatcher revolution. Smith’s proposition is a valuable corrective to the naïve notion that an action is good only if well-motivated. But modern economics, which The Wealth of Nations launched in 1776, is built on a character who is utterly despicable. Economic man is selfish, greedy and lazy. Such people do exist and you will meet some of them. But even billionaires do not live that way: the ones I know are driven workaholics who have built their lives around some purpose much larger than their own consumption.

Social man is still rational – he maximizes utility – but he gets utility not just from his own consumption, but from esteem. Like greed and belonging, it is a basic drive. The Nobel Laureate Vernon Smith saw that The Wealth of Nations and The Theory of Moral Sentiments are built on a common idea: the mutual benefit from exchange. The arena for exchanging commodities is the market. The arena for exchanging obligations is the networked group, the subject of this chapter. For two centuries, economists thought that Adam Smith had written two incompatible books and ignored The Theory of Moral Sentiments. Only recently has he been properly understood: there are not two Smiths but one, and his neglected ideas are profoundly important.4 People are motivated partly by the ‘wants’ of The Wealth of Nations, and partly by the ‘oughts’ of The Theory of Moral Sentiments. For each, Smith saw that the change from self-sufficiency to exchange was transformative, but his own assessment seems to have been that The Theory of Moral Sentiments was the more important, as if the exchange of ‘oughts’, trumped the exchange of wants.

Meal prices are no different, though a diner in Paris receives less attention than one in London. But the crucial social difference is that the waiters in Paris earn more. Yes, London has a lot of jobs, but they are lousy ones. Having set out what good non-cognitive training looks like, and the alternative track down which many young people are currently lured, we can finally turn to the psychology: what determines whether young people prefer this option? The crude psychology of The Wealth of Nations suggests that people only care about money. The more accurate psychology of The Theory of Moral Sentiments tells us that people also care about their position in society: they give and receive esteem. The evidence on regrets supports our intuition that esteem trumps money. But even on the criterion of money, many young people in America and Britain are being lured down cognitive culs-de-sac.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

These campaigns, however, were generally directed toward making capitalism more socially tolerable, rather than economically more effective. Chapter Three 1 Robert Heilbroner, The Worldly Philosophers, Chapters 1-2. 2 Max Weber, The Protestant Ethic and the Spirit of Capitalism. 3 Adam Smith, The Wealth of Nations, Books 1-III, 119. 4 Seabright, The Company of Strangers, 14-15. 5 The first edition of Smith’s The Wealth of Nations was published on March 9, 1776 by W. Strahan and T. Cadell in London. Andrew Skinner notes the coincidence of its publication on the eve of the Declaration of Independence in his introduction to Smith’s work. Andrew Skinner, introduction to The Wealth of Nations, Books I-III, by Adam Smith, 6. 6 Keynes and others have traced the first recorded use of the phrase “laissezfaire”—which literally means “let do” or “let make”—to a speech by French minister Rene de Voyer, Marquis d’Argenson, in 1751 in which he declared, “Laissez faire, telle devrait être la devise de toute puissance publique, depuis que le monde est civilisé. ” (Let it be, such should be the motto of every public power, ever since the world is civilized.)

As expounded by Max Weber in his classic The Protestant Ethic and the Spirit of Capitalism, there are two additional requirements: acceptance of profit and capital accumulation as motives with genuine moral legitimacy, as opposed to deplorable, though ineradicable, human vices; and the recognition of voluntary exchange and cooperation, rather than heredity and coercion, as the main organizing principles of economic life.2 These concepts emerged from the Calvinist ideology of the late seventeenth century, according to the standard view of social history pioneered by Weber. But they were crystallized by Adam Smith in The Wealth of Nations, producing some astonishingly counterintuitive revelations. Smith observed that a market economy, although it involves millions of unconnected individuals who work at highly specialized and narrow tasks, is a naturally self-organizing mechanism provided a few simple rules of commerce and mutual trust are generally obeyed and enforced. This self-organizing system produces mutually satisfactory outcomes as if it were guided by an “invisible hand,” but without the need for supernatural or divine intervention.

Galbraith in 1977: “We all agree that pessimism is a mark of superior intellect.”6 Yet this cynical conventional wisdom about the fundamental nature of economics, as well as about the capitalist system economics seeks to understand, is wrong. Most great economists—Smith, Ricardo, Mill, Keynes, Schumpeter, and Hayek—had an optimistic outlook about human creativity and the capacities of the market system. They were fundamentally optimistic for both practical and intellectual reasons. The main intellectual goal of economics set out by Adam Smith, and partly achieved by him in The Wealth of Nations, was to explain the miracle that led millions of unrelated individuals, all working freely in pursuit of their own desires and personal interests, to serve the needs of others and promote the prosperity of all. After Smith, other great economists enriched this understanding with unexpected and counterintuitive detail. Ricardo showed how nations could benefit from free trade even if it seemed initially to hurt many of their businesses and workers.


pages: 927 words: 216,549

Empire of Guns by Priya Satia

banking crisis, British Empire, business intelligence, Corn Laws, deindustrialization, delayed gratification, European colonialism, Fellow of the Royal Society, hiring and firing, interchangeable parts, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Khyber Pass, Menlo Park, Panopticon Jeremy Bentham, rent-seeking, Scramble for Africa, Silicon Valley, spinning jenny, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, transatlantic slave trade, zero-sum game

When political economy came of age at midcentury, it saw security of the realm and expansion of colonial markets as sustainable returns for increasing burdens on taxpayers. Its mercantilist mainstream saw commercial and colonial resources—metal, specie—as the liquidity needed to acquire a military arsenal and favored policies enabling Britain to acquire more resources than its rivals. Adam Smith’s complaints about the costs of war, about the “ruinous expedient” of perpetual funding and high public debt in peacetime, staked out a contrarian position; The Wealth of Nations (1776) was a work of persuasion. His and other voices in favor of pacific economic development grew louder from the margins. By denormalizing war, liberal political economy raised the stakes of the century’s long final wars from 1793 to 1815, which could be stomached only as an exceptional, apocalyptic stage on the way to permanent peace.

He struck a deal with Christopher Sholes, inventor of the modern keyboard, in 1868, producing the first Remington typewriter in 1874, a “discursive machine-gun” whose strikes and triggers echo the ammunitions transport in a revolver or machine gun. Electronic writing revolutionized communication; like the gun, it alters us fundamentally. 10 Opposition to the Gun Trade after 1815 Before he explained the wealth of nations, Adam Smith wrote about the moral sentiments necessary for judicious economic behavior, especially the capacity to survey one’s own sentiments “with the eyes of other people.” His Theory of Moral Sentiments appeared in 1759–61, when the doubling of identity was the norm—when exercising one’s conscience involved an almost literal division of the self into the judge and the self being judged. As a man shaped by that time, Galton Jr. could tolerate his split self: Quaker and gunmaker.

Berg, “Factories, Workshops and Industrial Organisation,” 128–29, 136–39, 147. Industrial organization was: The iron industry switched to coal-burning methods only late in the century, when wartime tariff policies suddenly rendered uncompetitive the foreign iron that had effectively been meeting rising demand. Evans et al., “Baltic Iron and the British Iron Industry,” 662. Adam Smith considered: A. Smith, The Wealth of Nations, 4–5. Handicraft and mechanized production: M. Berg, “Revisions and Revolutions.” Karl Marx knew: M. Berg, The Age of Manufactures, 194–98, 204, 255. short- or medium-term large rises: Hudson, The Industrial Revolution, 45. “semiskilled men with”: Collier, Arms and the Men, 29. an “astounding capacity”: Chew, Arming the Periphery, 64. Finance capital and industrial capital: Such a view may help reconcile older accounts of industrially driven imperialism with Cain and Hopkins’s more recent theory of financially driven expansion in British Imperialism.


pages: 331 words: 60,536

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

Workplace Extortion Before the Twentieth Century The rise and fall of union extortion of the capitalists can be readily explained by the changing megapolitics of the production process. In 1776, when Adam Smith published The Wealth of Nations, conditions for extortion in the workplace were sufficiently unfavorable that "combinations" by workmen "to raise the price of their labour" were seldom tenable. Most manufacturing firms were tiny and family-run. Larger-scale industrial activities were just beginning to emerge. This did not rule out opportunities for violence, but it gave them little leverage. Indeed, during Smith's time and well into the nineteenth century, unions were generally considered illegal combinations in the Great Britain, the United States, and other common-law countries. Adam Smith described attempted strikes in these terms: "Their usual pretences are sometimes the high price of provisions; sometimes the great profit which their master make by their work. . . .

It is also in the interest of the merchant that the customer should be prosperous, because a prosperous customer has the money to go on buying. Conquest implies the destruction of the other party; commerce implies the satisfaction of the other party. As modern technology has 296 made conquest an extraordinarily dangerous policy, commerce has become the only rational approach to the problems of survival. This interdependence is strengthened by another central idea of Adam Smith~not new with him~which is the specialization of function. The Wealth of Nations starts with a celebrated passage in which Adam Smith observes that "the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour." He points out that "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."

They quote from the World Bank's most recent world development report, on workers in an integrating world economy. 10. See Mancur Olson, "Diseconomies of Scale and Development," Cato Journal, vol.7, no.1 (Spring/Summer 1987). 11. Ibid. 12. Basil Davidson, The Black Mans' Burden: Africa and the Curse of the Nation State (New York: Times Books, 1992), p.290. 13. Olson, op. cit. 14. Adam Smith, The Wealth of Nations, p.724. This point was suggested by an argument by Edwin G. West in his Adam Smith and Modern Economics (Alder-shot, England: Edward Elgar Publishing, 1990), pp.88-89. 15. Fritz Rorig, The Medieval Town (Berkeley: University of California Press, 1967), p.28. 16. Albert 0. Hirschman, Exit, Voice, and Loyalty (Cambridge: Harvard University Press, 1969), p.81. 17. Tom Peters and George Gilder, "City vs. Country: Tom Peters & George Gilder Debate the Impact of Technology on Location," Forbes, February 1995. 18.


pages: 372 words: 94,153

More From Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources – and What Happens Next by Andrew McAfee

back-to-the-land, Bartolomé de las Casas, Berlin Wall, bitcoin, Branko Milanovic, British Empire, Buckminster Fuller, call centre, carbon footprint, clean water, cleantech, cloud computing, Corn Laws, creative destruction, crony capitalism, David Ricardo: comparative advantage, decarbonisation, dematerialisation, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, energy transition, Erik Brynjolfsson, failed state, Fall of the Berlin Wall, Haber-Bosch Process, Hans Rosling, humanitarian revolution, hydraulic fracturing, income inequality, indoor plumbing, intangible asset, James Watt: steam engine, Jeff Bezos, job automation, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Khan Academy, Landlord’s Game, Louis Pasteur, Lyft, Marc Andreessen, market fundamentalism, means of production, Mikhail Gorbachev, oil shale / tar sands, Paul Samuelson, peak oil, precision agriculture, profit maximization, profit motive, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, Scramble for Africa, Second Machine Age, Silicon Valley, Steve Jobs, Steven Pinker, Stewart Brand, telepresence, The Wealth of Nations by Adam Smith, Thomas Davenport, Thomas Malthus, Thorstein Veblen, total factor productivity, Uber and Lyft, uber lyft, Veblen good, War on Poverty, Whole Earth Catalog, World Values Survey

According to Mokyr, the Enlightenment created a “culture of growth”: Joel Mokyr, A Culture of Growth: The Origins of the Modern Economy (Princeton, NJ: Princeton University Press, 2016). Chapter 8: Adam Smith Said That: A Few Words about Capitalism capitalism found majority support only among Americans over fifty: Ehrenfreund, “A Majority of Millennials Now Reject Capitalism, Poll Shows,” Washington Post, April 26, 2016, https://www.washingtonpost.com/news/wonk/wp/2016/04/26/a-majority-of-millennials-now-reject-capitalism-poll-shows/?utm_term=.aa4e85460054. his article “The Conference Handbook”: George Stigler, “The Conference Handbook,” Journal of Political Economy 85, no. 2 (1977), https://www.journals.uchicago.edu/doi/pdfplus/10.1086/260576. “It is not from the benevolence”: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vols. (London: W. Strahan and T. Cadell, 1776), vol. 1, chap. 2, p. 19.

And if we add in all the mammals we’ve domesticated—cattle, sheep, pigs, horses, and so on—the comparison becomes truly ridiculous: we and our tamed animals now represent 97 percent of the earth’s mammalian biomass. This comparison illustrates a fundamental point: instead of being limited by the environment, we learned to shape it to our own ends during the Industrial Era. And did we do this wisely as well? In many ways and many places we did not. I. Also in 1776 the American Declaration of Independence was signed and the Scottish economist Adam Smith published his landmark The Wealth of Nations (a book we’ll come back to later). II. The battles over the Corn Laws led the politician James Wilson, who was in favor of free trade, to found The Economist. It’s still published today and is one of my favorite magazines (even though it calls itself a newspaper). III. It would have made sense for England to concentrate on manufacturing even if it were more productive than mainland Europe at both farming and manufacturing.

That’s a shame. Keeping Smith’s insights in mind lets us see why this system for organizing economic activity works so well at delivering prosperity. It also lets us see where capitalism’s fault lines lie and helps us in evaluating arguments against it. So, with Adam Smith as a guide, let’s look at three valid critiques of capitalism, and three invalid ones. First, the valid criticisms: Capitalism is selfish. Yes, it absolutely is. But as Smith points out, this is a good thing. One of the most quoted passages from his 1776 masterpiece, The Wealth of Nations,I is “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.” The profit motive is an extremely powerful incentive for people and companies to create goods and services others will want to buy.


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

A book that merely analyzes the problems without offering solutions is not particularly useful. In this book we'll present solutions. We end the book with thoughts on how to reform and fix the economy and political system. We do hope you're outraged after reading this book, but more important, we hope that you come away knowing that consumer and voter anger can be harnessed for good. In 1776 Adam Smith wrote The Wealth of Nations, and the Continental Congress declared independence from Britain. Smith complained bitterly about monopolies. He wrote of the East India Company: “… the monopoly which our manufacturers have obtained … has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature.”

Many industries are duopolies with only two major players controlling the entire market, while others are oligopolies with only three or four main competitors. Few are complete monopolies, so when you read headlines about the monopoly problem in the United States, as Professor Tim Wu has noted, “the press is sounding the wrong alarm. We know how to fight monopolies, but regulators are confused when it comes to duopolies and oligopolies.”18 You won't find the words duopoly or oligopoly in Adam Smith's The Wealth of Nations or in any of the antitrust acts, such as the Sherman Act of 1890 or the Clayton Act of 1914. The word oligopoly was not even created until the 1930s by the Harvard economist Edward Chamberlin. The word oligopoly comes from Greek and means “few sellers.” It has the same origin as the word oligarchs. Today's oligopolists are our oligarchs. While the term oligopoly is more correct than monopoly, we hope you will forgive us if we use them interchangeably in this book.

The Commission also had ties with the Irish and Jewish criminal organizations in New York, although their representatives could not vote because they were not Italian.3 Many industries have carved up the United States like the Mob divided the turf between families. Except in this case, there are no “made men” and only middle-aged white power brokers dividing the country. It doesn't matter where you look, competition looks fierce on paper but in reality it is often carefully orchestrated. There is nothing new under the sun. Even in the eighteenth century, Adam Smith wrote in The Wealth of Nations that “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.” A little later John Stuart Mill echoed the sentiment, “Where competitors are so few, they always end by agreeing not to compete.” Yet these lessons are lost on us now. When Americans think of businessmen getting together to fix prices, they generally think of Matt Damon in The Informant.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"Robert Solow", accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus, zero-sum game

“Monthly Statement of the Public Debt of the United States: January 31, 2011,” United States Department of the Treasury, http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opds012011.pdf. 24. Adam Smith, Wealth of Nations (Buffalo, NY: Prometheus Books, 1991), 587. 25. See Murphy, “Genesis,” 155–179, for a good overview of Smith’s economics. 26. Albert Hirschman, The Passions and The Interests: Political Arguments for Capitalism before Its Triumph (Princeton, NJ: Princeton University Press, 1977). 27. Murphy, “Genesis.” Although some commentators see Smith as being critical of banks, there are other parts of the Wealth of Nations in which he is positively enthusiastic about them. 28. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Indianapolis, IN: Hackett, 1996), 64. 29. It may lead to inflation, but that’s another matter, and, oddly, it’s one that didn’t seem to preoccupy Smith all that much. 30.

Not the state as we know it today—(usually) a representative democracy with large-scale spending ambitions—but the state personified by sovereigns: vicious, capricious, untrustworthy monarchs who would as soon steal your wealth as look at you. The state was therefore something to be avoided, minimized, bypassed, curtailed, and above all, not trusted. The market, in contrast, emerged in liberal thought as the intellectual and institutional antidote to the confiscatory politics of the king.4 In such a world, if prices and merchants were set free, the wealth of nations (note, not “kingdoms”) would multiply. But from the start this liberal view of “the state versus the market” rested upon a misunderstanding: markets naturally appear when you remove the state from the equation. However, as Karl Polanyi noted at the end of World War II, there is nothing natural about markets.5 Turning people into wage laborers, securing the private ownership of land, even inventing capital and preserving its monetary form are all deeply political projects that involve courts, regulation, enforcement, bureaucracy, and all the rest.6 Indeed, gaining control of the state by the merchant class was a defining feature of early capitalism.7 With the partial exceptions of the United Kingdom and the United States (the former because it was first to make the transition to capitalism and the latter because it was geographically isolated), from Germany in the 1870s to China today, states make markets as much as markets determine the fate of states.8 Yet liberal economic thought remains largely oblivious to these facts.

From his notes on the division of labor in the eponymous pin factory to the “invisible hand” guiding selfish actions to common purposes, Smith’s sound bites are well known. The details of what Smith said about the economy are far less well known and quite surprising. Smith brought together much of the scattered work of early economists on the nature of money, economic growth, the role of capital and labor, and a host of other issues, and then had the good sense to put it in one accessible place: The Wealth of Nations.25 As Albert Hirschman observed, this book was no academic project. It was an argument for capitalism before its triumph, and a very successful argument, too.26 For our purposes here, we find in Smith a particular sensibility toward the state and its debt that brings us closer to the modern idea of austerity, but from a surprising angle: the importance of personal frugality and parsimony as the engine of capitalist growth.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, God and Mammon, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

They then triumphantly rediscover the secret of prosperity: Thus Vice nurs’d Ingenuity, Which joined with Time and Industry, Had carry’d Life’s conveniencies, Its real Pleasures, Comforts, Ease, To such a Height, the very Poor Liv’d better than the Rich before. Adam Smith in Britain and Voltaire in France put the case for material values rather differently. For Voltaire, the great merit of commerce was that the pursuit of self-interest was less dangerous than the pursuit of other goals such as military expansion or religious salvation. He also believed that the self-interested pursuit of profit through commerce had a socialising influence, not least because it helped reduce religious differences. For his part, Adam Smith in The Wealth of Nations argued that consumption was socially benign and that the market economy was the best means for achieving what he called ‘universal opulence’. He also took up the cudgels against the mercantilists, ridiculing their arguments with a brilliantly effective illustration: By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries.

To name just one example, Gordon Gekko’s ‘greed is good’ speech in the film Wall Street clearly descends in a direct line from the author of the fable. The Fable of the Bees was not universally admired by other Enlightenment thinkers. Adam Smith could not bring himself to accept the extremity of Mandeville’s paradox, in which vice was a necessary condition of prosperity. In his justly celebrated redefinition of the boundaries of the argument about business and morality, he emphasised self-interest rather than vice, with his statement in The Wealth of Nations that ‘it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest’. 10 In much the same vein, he added: ‘I have never known much good done by those who affected to trade for the public good.’11 Yet, as the author of The Theory of Moral Sentiments, he also emphasised the need for markets to operate within a moral context and believed that the act of engaging in market exchange entailed a discipline that encouraged good individual behaviour as well as the good of wider society.

Yet, as I will show, it is arguable that manufacturing employment ought to fall in a mature economy; and one of the safest predictions for the twenty-first century is that in the developed world it will continue to do so without causing a collapse in living standards. To make this case is admittedly quite a challenge, because the prejudice about the superiority of manufacturing over services has deep historical roots. Adam Smith, still hugely influential across the centuries, showed a bias in The Wealth of Nations against services, suggesting that while the labour of a manufacturer added value, the labour of a menial servant did not: There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit.


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

The South Sea Company collapsed in such a bubble of speculation in 1720 that the British parliament banned the creation of such entities—characterized by dispersed shareholders whose liability for the company’s debt was limited to the value of their shares. In 1776, Adam Smith argued that the “joint-stock company,” as the corporation was then known, had proved an unmitigated disaster. “The directors of such companies,…being the managers of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own,” he wrote in the Wealth of Nations. “Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.”1 During the industrial revolution that began just after Smith’s death, it became apparent that his analysis was off.

Poincaré’s report on Bachelier’s thesis, translated by Selime Baftiri-Balazoski and Ulrich Haussman, is also included in the article. 9. Richard Hofstadter, Social Darwinism in American Thought, rev. ed. (Boston: Beacon Press, 1955), 51–53. 10. William Graham Sumner, What the Social Classes Owe to Each Other (Caldwell, Idaho: The Caxton Printers, 1989), 107. 11. Adam Smith, Wealth of Nations, book 4, chap. 2, par. 4, 2.9 (Indianapolis: Liberty Fund, 1981). It’s not clear Smith himself saw it that way, although many subsequent economists did. The actual quote from the Wealth of Nations is: As every individual…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 revenue of the society as great as he can.

Merton, Continuous-Time Finance (Cambridge, Mass.: Basil Blackwell, 1990), 15. 24. John C. Cox, Stephen A. Ross, and Mark Rubinstein, “Option Pricing: A Simplified Approach,” Journal of Financial Economics (Sept. 1979): 229–63. 25. Stephen A. Ross, “Options and Efficiency,” Quarterly Journal of Economics (Feb. 1976): 76. CHAPTER 9: MICHAEL JENSEN GETS CORPORATIONS TO OBEY THE MARKET 1. Adam Smith, The Wealth of Nations (Indianapolis: Liberty Fund, 1981), 741. 2. In the United States the first all-purpose general incorporation statute was Connecticut’s, enacted in 1837, although some states allowed easy incorporation of companies in particular industries before that. In the United Kingdom, Parliament allowed for general incorporation in 1844. Robert Hessen, In Defense of the Corporation (Stanford, Calif.: Hoover Institution, 1979).


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The Locavore's Dilemma by Pierre Desrochers, Hiroko Shimizu

air freight, back-to-the-land, British Empire, Columbian Exchange, Community Supported Agriculture, creative destruction, edge city, Edward Glaeser, food miles, Food sovereignty, global supply chain, intermodal, invention of agriculture, inventory management, invisible hand, Jane Jacobs, land tenure, megacity, moral hazard, mortgage debt, oil shale / tar sands, oil shock, peak oil, planetary scale, profit motive, refrigerator car, Steven Pinker, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, Upton Sinclair, urban sprawl

Cambridge University Press; Maguelonne Toussaint-Samat. 1994/1987. History of Food (translated by Anthea Bell). Blackwell Publishing; Vaclav Smil. 2010. Prime Movers of Globalization. The History and Impact of Diesel Engines and Gas Turbines. MIT Press; and Robert P. Clark. 2000. Global Life Systems. Population, Food, and Disease in the Process of Globalization. Rowman & Littlefield Publishers, Inc. 5 Adam Smith. 1776. An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. 1, Book I, chapter II: Of the Principle which gives occasion to the Division of Labour. Available at http://www.econlib.org/library/Smith/smWN1.html#B.I, Ch.2, Of the Principle which gives Occasion to the Division of Labour. 6 Gisday Wa and Delgam Uukw. 1989 The Spirit in the Land. Reflections, p. 44. 7 For genus Homo as a whole, this would amount to 99% of its record. 8 In the last several decades, X-rays, gamma rays, fast neutrons and thermal neutrons were used to cause mutations in plants.

“Come On Down to the Farmers Market (Bring Your Wallet and Your Food Orthodoxy), (September 17) http://www.consumerfreedom.com/news_detail.cfm/h/3992-come-on-down-to-the-farmers-market-bring-your-wallet-and-your-food-orthodoxy. 7 Alisa Smith and J.B. MacKinnon. 2005. “Living on the 100-mile Diet,” The Tyee (June 28) http://thetyee.ca/Life/2005/06/28/HundredMileDiet and Alisa Smith and J.B. MacKinnon. 2007.The 100-Mile Diet. A Year of Local Eating. Random House Canada. 8 Adam Smith. 1776. An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. 1, Book IV, chapter II: Of Restraints upon the Importation from Foreign Countries of Such Goods as Can Be Produced at Home http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=237&chapter=212328&layout=html&Itemid=27. 9 See, among others, Tom Philpott. 2011. “Freakonomics Blog: Still Wrong on Local Food.” MotherJones.com (November 18) http://motherjones.com/tom-philpott/2011/11/freakonomics-blog-still-wrong-local-food. 10 See Peter Garnsey. 1988.

Bloomberg.com (November 24) http://www.bloomberg.com/news/2011-11-24/china-s-soybean-imports-in-2011-may-decline-shanghai-jc-says.html In 2010, the USA, Brazil, Argentina and China produced respectively 35, 27, 19 and 6% of the world’s total production (“World Statistics” at soy stats.com http://www.soystats.com/2011/Default-frames.htm ). 56 Quoted in Alan L. Olmstead and Paul W. Rhode. 2008. Creating Abundance. Biological Innovation and American Agricultural Development. Cambridge University Press, p. 381. 57 Adam Smith. 1776. An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. 1, Book I, chapter 8: On the Wages of Labour http://oll.libertyfund.org/?option=com_staticxt&staticfile=show. php%3Fti tle=220&chapter=217399 &layout=html&Itemid=27. Chapter 4 1 See, among others, Dennis E. Jelinski. 2005. “There is no Mother Nature—There is no Balance of Nature: Culture, Ecology and Conservation.” Human Ecology 33 (2): 271–288. 2 The ancestors of today’s large African animals who had co-evolved with them, on the other hand, had long learned to be more careful around these seemingly puny creatures.


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Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

Airbnb, bank run, Bernie Madoff, bitcoin, Bretton Woods, buy and hold, Carmen Reinhart, corporate raider, correlation does not imply causation, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Mark Zuckerberg, market bubble, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Travis Kalanick, Uber for X, War on Poverty, yield curve

Mica (a mineral a bit like slate) around which the heating element is wound, and of course plastic for the plug and cord insulation, and for the all-important sleek looking casing. Eventually, he plugged in what Harford described as a “toaster-shaped birthday cake,” and “two seconds later, the toaster was toast.” Thwaites concluded, “If you started absolutely from scratch, you could easily spend your life making a toaster.”1 Harford’s opening subject was, in many ways, a tribute to Adam Smith’s brilliant book The Wealth of Nations, and more modernly, to Leonard Read’s I, Pencil. In the former, Smith opens with an essential point: “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.”2 Smith goes on to describe something as basic as a pin factory.

In that case, it’s fair to say the market valuation placed on land, buildings, houses, and companies with coastal addresses would be in freefall—a reflection of our unwillingness to curb our consumption. That they’re not falling, but most often rising, is a market signal that fears of an environmental calamity related to oil consumption are vastly overdone. Instead, the nature of my argument about why the fracking boom has been anticredit is monetary. Specifically, it’s about the value of the dollar. For some simple background, we turn to Adam Smith, who made a critical observation in The Wealth of Nations: “The sole use of money is to circulate consumable goods.”7 There’s nothing abnormal or intimidating about Smith’s quote. As readers know by now, if money were actual wealth or itself a commodity, we’d all be rich. We could simply create lots of dollars. But money is not wealth. Money is a measure of wealth. I have bread, but I want the vintner’s wine. The problem is that the vintner doesn’t want my bread; he wants the butcher’s meat.

As Gustav Cassel explained in his 1922 book Money and Foreign Exchange after 1914, “Effective warfare under really serious conditions is practically impossible without inflation.”11 And so the dollar began to decline. It bought 1/266th of an ounce of gold when Bush was inaugurated in 2001, and by July 2008 it bought 1/940th of an ounce.12 In a sequel to the 1970s, Americans once again started speculating on housing. It offered better returns than the stock market, plus you can live in a house. The rush into housing was a hugely negative economic signal, much as it was in the 1970s. As Adam Smith wrote in The Wealth of Nations: Though a house . . . may yield a revenue to its proprietor, and thereby serve in the function of a capital to him, it cannot yield any to the public, nor serve in the function of a capital to it, and the revenue of the whole of the people can never be in the smallest degree increased by it.13 Housing was all the rage. It was a safe haven against devaluation, and because it was, the real economy lost.


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The End of the Free Market: Who Wins the War Between States and Corporations? by Ian Bremmer

affirmative action, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, centre right, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, cuban missile crisis, Deng Xiaoping, diversified portfolio, Doha Development Round, Exxon Valdez, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, invisible hand, joint-stock company, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, low skilled workers, mass immigration, means of production, megacity, Mikhail Gorbachev, mutually assured destruction, Naomi Klein, Nelson Mandela, new economy, offshore financial centre, open economy, race to the bottom, reserve currency, risk tolerance, shareholder value, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, trade route, tulip mania, uranium enrichment, Washington Consensus, Yom Kippur War, zero-sum game

Drucker, “Trading Places,” National Interest, Spring 2005. 14 Antoine van Agtmael, The Emerging Markets Century: How a New Breed of World-Class Companies Is Overtaking the World (New York: Free Press, 2007). 15 From Bill Clinton’s 1996 State of the Union Address, http://clinton4.nara.gov/WH/New/other/sotu.html. 16 Forbes magazine’s Global 2000 list of companies for 2008. CHAPTER TWO : A Brief History of Capitalism 1 Adam Smith, The Wealth of Nations (1776; New York: Modern Library, 1994), book 4, ch. 2, pp. 484-85. 2 Adam Smith, The Theory of Moral Sentiments (1759; Cambridge, UK: Cambridge University Press, 2002), Introduction. 3 During the savings-and-loan crisis of the 1980s (and early 1990s) more than a thousand savings-and-loan associates failed at a cost of at least $125 billion to the U.S. federal government. 4 The South Sea Company, founded in 1711, enjoyed a monopoly over British trade with Spanish South America and the Pacific region.

But even this broader (simplistic) definition allows for variations, differences that are determined by the extent of government involvement in all these decisions. Those who believe in pure or laissez-faire capitalism argue that while the buyers and sellers are buying and selling, the state should mind its own business. Beyond enforcing contracts and protecting property rights, governments enable capitalism by staying out of its way. Adam Smith, the oft-quoted father of modern capitalism, wrote in The Wealth of Nations (1776) of the unintended benefits that society derived from individual greed: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.1 Some students of Smith’s writings might qualify this point with a reference to his earlier work, The Theory of Moral Sentiments (1759), in which he argues thatthere are evidently some principles in [man’s] nature which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it.2 Advocates of pure capitalism insist that the “invisible hand” must be allowed to work its magic—and that any effort by government to guide its actions can only burden markets and distort their natural operation.

There are variations within even this single category of capitalism, because some states involve themselves in their domestic economies much more often and more directly than others. Yet all mixed capitalist systems share faith in the principle that only free markets can generate long-term prosperity and that government should never become the dominant player in an economy. State capitalism represents a direct challenge to that belief. Capitalism and Political Free Markets It’s not mere coincidence that Adam Smith published The Wealth of Nations in the same year that America’s founders signed their Declaration of Independence from Britain. The movement that eighteenth-century philosopher Immanuel Kant called the Enlightenment inspired all sorts of people to demand all sorts of freedoms—both economic and political—from priests, lords, and kings. Modern capitalism began to take shape as the Industrial Revolution transformed economies from dependence on manual labor to more dynamic models based on mechanized farming and manufacturing.


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A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

Not the one that you use for your credit cards. But that little metal thing that most of you do not use – that is, unless you have long hair and like to keep it tidy or make your own clothes. The making of the pin is the subject of the very first chapter of what is commonly (albeit mistakenly)1 considered to be the first economics book, namely, An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith (1723–90). Smith starts his book by arguing that the ultimate source of increase in wealth lies in the increase in productivity through greater division of labour, which refers to the division of production processes into smaller, specialized parts. He argued that this increases productivity in three ways. First, by repeating the same one or two tasks, workers become good at what they do more quickly (‘practice makes perfect’).

The majority of people still worked in agriculture even in Western Europe, where capitalism was then most advanced.3 A small minority of them worked as wage labourers for agricultural capitalists, but most of them were either small subsistence farmers or tenants (those who rent land and pay a proportion of their output in return) of aristocratic landlords. During this era, even many of those who worked for capitalists were not wage labourers. There were still slaves around. Like tractors or traction animals, slaves were means of production owned by capitalists, especially the plantation owners in the American South, the Caribbean, Brazil and elsewhere. It was two generations after the publication of The Wealth of Nations (henceforth TWON) that slavery was abolished in Britain (1833). It was nearly a century after TWON and after a bloody civil war that slavery was abolished in the US (1862). Brazil abolished it only in 1888. While a large proportion of people who worked for capitalists were not wage labourers, many wage labourers were people who wouldn’t be allowed to become wage labourers today. They were children.

This paradoxical outcome is made possible by the power of competition in the market. In their attempts to make profits, producers strive to supply cheaper and better things, ultimately producing their products at the minimum possible costs, thus maximizing national output. This idea is known as the invisible hand and has become arguably the most influential metaphor in economics, although Smith himself used it only once in The Wealth of Nations (TWON) and did not accord it a prominent role in his theory.* Most Classical economists believed in the so-called Say’s Law, which states that supply creates its own demand. The reasoning was that every economic activity generates incomes (wages, profits, etc.) equivalent to the value of its output. Therefore, it was argued, there can be no such thing as a recession due to a shortfall in demand.


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GDP: A Brief but Affectionate History by Diane Coyle

"Robert Solow", Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, BRICs, business cycle, clean water, computer age, conceptual framework, crowdsourcing, Diane Coyle, double entry bookkeeping, en.wikipedia.org, endogenous growth, Erik Brynjolfsson, Fall of the Berlin Wall, falling living standards, financial intermediation, global supply chain, happiness index / gross national happiness, hedonic treadmill, income inequality, income per capita, informal economy, Johannes Kepler, John von Neumann, Kevin Kelly, Long Term Capital Management, mutually assured destruction, Nathan Meyer Rothschild: antibiotics, new economy, Occupy movement, purchasing power parity, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thorstein Veblen, University of East Anglia, working-age population

At another time, the debate in coffeehouses and pamphlets centered firmly on the national debt, the figures for which the government published frequently between the late seventeenth and late eighteenth centuries. Once again, financing warfare was the motivation. Then came a substantial intellectual innovation. In The Wealth of Nations (published 1776), Adam Smith introduced the distinction between “productive” and “unproductive” labor. An anonymous author had written in 1746, “What I mean by National Income is, all the whole body of our People get or receive from Land, Trade, Arts, Manufactures, Labour, or any other way whatsoever; and by Annual Expence I mean, the whole that they spend or consume.” Yet in Adam Smith’s definition thirty years later, the “whole body of our People” did not count. Only those involved in the making of physical commodities, agriculture and industry, would count toward national income.

The provision of more services was a cost to the national economy, in his view. A servant was a cost to his employer, and did not create anything. Importantly, money spent on warfare or the interest on government debt was also being used unproductively. The nation’s wealth was its stock of physical assets less the national debt. National income was what derived from the national wealth. According to Benjamin Mitra-Kahn, “The Wealth of Nations introduced a new idea of the economy, and through the effort of Adam Smith’s students and admirers, it was adopted almost instantly.” In Smith’s own words: There is one sort of labour which adds to the value of the subject upon which it is bestowed: There is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit.

Frits Bos, “Uses of National Accounts: History, International Standardization and Applications in the Netherlands,” MPRA Paper no. 9387, 30 June 2008, http://mpra.ub.uni-muenchen.de/9387/. Accessed 1 August 2012. 2. Benjamin H. Mitra-Kahn, “Redefining the Economy: How the ‘Economy’ Was Invented, 1620” (Ph.D. dissertation, City University London, 2011), http://openaccess.city.ac.uk/1276/. Accessed 3 August 2012. 3. Adam Smith, The Wealth of Nations (first published 1776), book II, chap. 3. 4. Geoff Tily, “John Maynard Keynes and the Development of National Accounts in Britain, 1895–1941,” Review of Income and Wealth 55, no. 2 (2009): 331–359. 5. Angus Maddison, The World Economy: Historical Statistics (Paris: Organization for Economic Cooperation and Development, 2003), preface. 6. Joined by the United States after the attack on Pearl Harbor in December 1941. 7.


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Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

"Robert Solow", affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, plutocrats, Plutocrats, price stability, profit maximization, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, working-age population, Y2K, Yom Kippur War

We understood that problem then, but we thought that it was a minor one. Estimates from the Brookings Institution say that preservation of Social Security at current levels would entail expenditure of about 2% of taxable earnings.16 We thought then, and we still think now, that Kerry’s mistake cost him the election. Saving and the Wealth of Nations We have been talking so far about personal decisions to save, why saving varies, and how important it is to people’s welfare in retirement. But there has long been another theme regarding savings. There are vast differences in the wealth of nations. In per capita terms there is more than a 200-fold difference between per capita income from the richest countries to the poorest. Indeed if we include Luxembourg and Burundi it is closer to a 1,000-fold difference.17 Income and wealth depend upon countries’ freedom to trade, the skills of their people, their geography, their current and past history of wars, their political and legal institutions.

“Liquidation Values and Debt Capacity: A Market Equilibrium Approach.” Journal of Finance 47(4):1343–66. ———. 1997. “The Limits of Arbitrage.” Journal of Finance 52(1):33–55. Sims, Christopher A. 1972. “Money, Income and Causality.” American Economic Review 62:540–52. ———. 2001. “Pitfalls of a Minimax Approach to Model Uncertainty.” American Economic Review 91(2):51–54. Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. London: Ward, Lock, Bowden & Co. Smith, Edgar Lawrence. 1925. Common Stocks as Long-Term Investments. New York: Macmillan. Solow, Robert. 1979. “Another Possible Source of Wage Rigidity.” Journal of Macroeconomics 1(1):79–82. Sorkin, Andrew Ross. 2008. “JP Morgan Pays $2 a Share for Bear Stearns.” New York Times, March 17. Soros, George. 2008. The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.

“Demographic Profile of the Federal Workforce.” https://www2.opm.gov/feddata/demograp/demograp.asp#RNO Data. Utaka, Atsuo. 2003. “Confidence and the Real Economy: The Japanese Case.” Applied Economics 35(3):337–42. Venti, Steven F., and David A. Wise. 2000. “Choice, Chance, and Wealth Dispersion at Retirement.” National Bureau of Economic Research Working Paper 7521, February. “Want Old Rate Restored.” 1894. Boston Daily, February 10, p. 10. Warsh, David. 2006. Knowledge and the Wealth of Nations: A Story of Economic Discovery. New York: W. W. Norton. Weinstein, Neil, and William M. Klein. 1996. “Unrealistic Optimism: Present and Future.” Journal of Social and Clinical Psychology 15:1–8. Welch, Jack, with John A. Byrne. 2001. Jack: Straight from the Gut. New York: Warner. Wentura, Dirk. 2005. “The Unknown Self: The Social Cognition Perspective.” In Werner Greve, Klaus Rothermund, and Dirk Wentura, eds., The Adaptive Self: Personal Continuity and Intentional Self-Development.


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A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

His friend and fellow economist, Thomas Malthus, who we’ll meet properly soon, had a small stake in the loan. Malthus panicked, and wrote to Ricardo to ask him to get rid of his share. Ricardo held his nerve, though, and held onto his own stake. When news came of the British victory, he became one of the wealthiest men in Britain overnight. Ricardo stumbled upon economics in a library where he discovered Adam Smith’s The Wealth of Nations. It turned out to be the most important book he ever read, and inspired him to apply his formidable mind to the analysis of the economy at a time when the new capitalists were competing for power with the old land-owning aristocrats. The question was how the country’s growing wealth was to be divided between the landowners, the capitalists and the mass of workers. Although Smith had shown how markets brought prosperity, he’d detected notes of conflict.

He was only brought back to his senses by the sound of church bells ringing for the Sunday service. He had good reason to be caught up in his thoughts. He’d moved away from the buzz of the cities where he’d made his name as a philosopher to write what would become arguably the most celebrated book in the history of economics. It led some to call him the father of modern economics. Fuelled by bracing walks and sleepless nights, the hefty book was published in 1776 and called The Wealth of Nations. In it Smith posed one of the fundamental questions of economics. Is self-interest compatible with a good society? To understand what this means, let’s compare the workings of society with those of a football team. A good football team needs good players, obviously. Good players do more than simply dribble and shoot well. They know how to play as a team. If you’re a defender you stay back and protect the goal; if you’re an attacker you move forward and try to score, and so on.

What mattered to them was producing goods to sell to foreigners for gold; the availability of many goods, including imported ones, could even be a bad thing if spending on them led to an outflow of gold from the country. Smith had a vision of a new economy that was then being born, one based on the division of labour and self-interest. He has been acclaimed as a sage, often by those who believe that markets should rule above all else, that governments should do as little as possible and businesses do what they like. Two hundred years after The Wealth of Nations was published, American President Ronald Reagan championed these principles, taking Smith as his inspiration. Some of his White House officials even took to wearing ties with Smith’s portrait on them. But Smith might not have felt flattered by this. For one thing, he championed the role of markets as an attack on the mercantilist system which then ruled Europe with its many restrictions on buying and selling.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

"Robert Solow", battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

Frankfurt later developed his theory into a bestselling book, On Bullshit, published by Princeton University Press in 2005. 10 Revamping the Ovarian Lottery ‌1 Norbert Haring & Niall Douglas, Economists and the Powerful (London: Wimbledon Publishing Company, 2012), p. 1. ‌2 Adam Smith, The Wealth of Nations (London: Penguin Books, 1999), p. 857. ‌3 Hugh Stretton & Lionel Orchard, Public Goods, Public Enterprise, Public Choice: Theoretical Foundations of the Contemporary Attack on Government (New York: St. Martin’s Press, 1994), p. 20. ‌4 Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957), p. 163. ‌5 R. H. Tawney, Religion and the Rise of Capitalism (Toronto: Penguin Books, 1990), p. 73. ‌6 Henry Simons, Personal Income Taxation (Chicago: University of Chicago Press, 1938), p. 29. ‌7 Henry Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948), p. 6. ‌8 Smith, The Wealth of Nations, p. 725. ‌9 Ibid., p. 842. Interestingly, while Adam Smith appears to support a progressive income tax, Karl Marx thought the idea was rather lame and that it fell considerably short of the kinds of changes needed.

‘No fundamental disturbance of the whole system is involved,’ noted Simons in his classic ‌1938 text Personal Income Taxation.6 He elaborated on this theme later, in Economic Policy for a Free Society, emphasizing how progressive taxation achieves redistribution without impinging on freedom: ‘What is important for libertarians is that we preserve the basic processes of free exchange and that egalitarian measures be superimposed on those processes, effecting redistribution afterward and not in the immediate course ‌of production and commercial transactions.’7 It could be added here that taxation – and even heavy taxation of the rich – was supported by no less a conservative heavyweight than Adam Smith. This might come as a surprise since Smith’s legacy has been largely appropriated in recent years by neoliberals. While they’ve managed to tear snippets out of context to present his The Wealth of Nations as a manifesto for unbridled capitalism, in fact Smith was a philosopher who was wary of the social consequences of the emerging industrial capitalist system, and in particular the dangers of inequality. Throughout The Wealth of Nations, Smith consistently championed the rights of workers against the rights of merchants and industrialists. And he showed his cynicism toward business interests when he famously noted that ‘people in the same trade seldom meet together, even for merriment and diversion, but that conversation ends in a conspiracy against the public’.

This role, so little acknowledged today, was widely understood in earlier times, when taxes were regarded as a cornerstone of liberty and democracy. In the United States, the slogan ‘no taxation without representation’ became the rallying cry of the Revolutionary War, reflecting the connection the colonial rebels made between taxation and democracy. Similarly, Adam Smith, the eighteenth-century Scottish philosopher and founder of the classical school of economics, rejected suggestions put forward by some in his day that taxes were ‘badges of slavery’. As he wrote in The Wealth of Nations: ‘Every tax…is to the person who pays it a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed, but that, as he has some property, he cannot himself be ‌the property of a master.’2 • • • Key to the development and promotion of today’s fierce anti-tax ideology was the emergence of a school of thought known as ‘public choice theory’.


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Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own by Garett Jones

centre right, clean water, corporate governance, David Ricardo: comparative advantage, en.wikipedia.org, experimental economics, Flynn Effect, Gordon Gekko, greed is good, hive mind, invisible hand, Kenneth Arrow, law of one price, meta analysis, meta-analysis, prediction markets, Robert Gordon, Ronald Coase, Saturday Night Live, social intelligence, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thorstein Veblen, wikimedia commons, zero-sum game

It’s that the memory skills and other traits that higher-IQ individuals tend to have are useful in searching out win-win possibilities, so it would be a great surprise if that didn’t happen in the lab and out in the real world. And if a game of pure conflict turns even slightly into a game of mutual interest, Sobel and Crawford would predict that mutual interest will spur clearer communication. Adam Smith’s Pin Factory: A Team Effort If you’ve never read it before, right now is an excellent time to read the first chapter of Adam Smith’s second book, The Wealth of Nations, published in 1776. Just a few pages long, it discusses how pins are made—the small pushpins that have a flat head, not sewing needles or wooden clothespins. This chapter is where Smith lays out the power of the division of labor, showing that by dividing the job of making pins into about a half-dozen separate tasks—wire-cutting, point-sharpening, head-flattening, and so on—a small group of individuals could make a few pounds of pins each day.

Even a small tendency to conform, to act just a little bit like those around us, to try to fit in, tends to quietly shape our behavior. If you have cooperative, patient, well-informed neighbors, that probably makes you a bit more cooperative, patient, and well-informed. Of course, test scores don’t explain everything about the wealth of nations: I’m only claiming that IQ-type scores explain about half of everything across countries—and much less within a country. If your next-door neighbor earns a lot more or less than you, it’s not mostly because of IQ. And across countries, differences in geography, culture, and the long reach of colonialism are surely shaping the wealth of nations. The hive mind is no single-cause theory of prosperity. It’s just a story that almost no one else is talking about. Chapter 1 JUST A TEST SCORE? HERE’S THE MOST IMPORTANT FACT ABOUT IQ TESTS: skill in one area predicts skill in another.

After all, rich countries and poor countries differ in countless ways, and average test scores are just one of the differences. I could just as easily have shown a graph that shows that rich countries have more cell phones per person, or that people in rich countries eat at restaurants more often or are more likely to have vacation homes. Does Figure I.1 really tell us anything about what drives the wealth of nations? One preliminary check is to see whether a nation’s average test scores still do a good job of predicting a nation’s level prosperity even when you know a lot of other things about the country: this approach is known as multiple regression. It amounts to asking, “Even if I already know that your country has a high savings rate, a lot of mineral wealth, or whatever, does knowing your nation’s average test scores still help me to predict how productive your country is?”


pages: 565 words: 151,129

The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism by Jeremy Rifkin

"Robert Solow", 3D printing, active measures, additive manufacturing, Airbnb, autonomous vehicles, back-to-the-land, big-box store, bioinformatics, bitcoin, business process, Chris Urmson, clean water, cleantech, cloud computing, collaborative consumption, collaborative economy, Community Supported Agriculture, Computer Numeric Control, computer vision, crowdsourcing, demographic transition, distributed generation, en.wikipedia.org, Frederick Winslow Taylor, global supply chain, global village, Hacker Ethic, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), intermodal, Internet of things, invisible hand, Isaac Newton, James Watt: steam engine, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Julian Assange, Kickstarter, knowledge worker, longitudinal study, Mahatma Gandhi, manufacturing employment, Mark Zuckerberg, market design, mass immigration, means of production, meta analysis, meta-analysis, natural language processing, new economy, New Urbanism, nuclear winter, Occupy movement, off grid, oil shale / tar sands, pattern recognition, peer-to-peer, peer-to-peer lending, personalized medicine, phenotype, planetary scale, price discrimination, profit motive, QR code, RAND corporation, randomized controlled trial, Ray Kurzweil, RFID, Richard Stallman, risk/return, Ronald Coase, search inside the book, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, smart cities, smart grid, smart meter, social web, software as a service, spectrum auction, Steve Jobs, Stewart Brand, the built environment, The Nature of the Firm, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, transaction costs, urban planning, Watson beat the top human players on Jeopardy!, web application, Whole Earth Catalog, Whole Earth Review, WikiLeaks, working poor, zero-sum game, Zipcar

Heilbroner, The Making of Economic Society (Englewood Cliffs, NJ: Prentice-Hall, 1962), 36–38, 50. 22. S. R. Epstein and Maarten Prak, Guilds, Innovation, and the European Economy, 1400–1800 (Cambridge: Cambridge University Press, 2008) 31. 23. Ibid., 44. Chapter 3 1. Yujiro Hayami and Yoshihisa Godo, Development Economics: From the Poverty to the Wealth of Nations (New York: Oxford University Press, 2005), 341. 2. Maurice Dobb, Studies in the Development of Capitalism (New York: International Publishers, 1947), 143. 3. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Edinburgh: Thomas Nelson, 1843), 20. 4. Ibid. 5. Ibid., 21. 6. Ibid., 22. 7. Carl Lira, “Biography of James Watt,” May 21, 2013, http://www.egr.msu.edu/~lira/supp/steam /wattbio.html (accessed January 7, 2014). 8. Jean-Claude Debeir, Jean-Paul Deléage, and Daniel Hémery, In the Servitude of Power: Energy and Civilization through the Ages (London: Zed Books, 1992), 101–104. 9.

The food we eat, the water we drink, the artifacts we make and use, the social relationships we engage in, the ideas we bring forth, the time we expend, and even the DNA that determines so much of who we are have all been thrown into the capitalist cauldron, where they are reorganized, assigned a price, and delivered to the market. Through most of history, markets were occasional meeting places where goods were exchanged. Today, virtually every aspect of our daily lives is connected in some way to commercial exchanges. The market defines us. But here lies the contradiction. Capitalism’s operating logic is designed to fail by succeeding. Let me explain. In his magnum opus, The Wealth of Nations, Adam Smith, the father of modern capitalism, posits that the market operates in much the same way as the laws governing gravity, as discovered by Isaac Newton. Just as in nature, where for every action there is an equal and opposite reaction, so too do supply and demand balance each other in the self-regulating marketplace. If consumer demand for goods and services goes up, sellers will raise their prices accordingly.

Of course, my father could never have imagined in the early years that the millions of plastic bags he was selling would end up in landfills and pollute the environment. Nor could he have foreseen that the petrochemicals used to extrude the polyethylene would emit carbon dioxide and play a key role in altering the climate of the planet. Reflecting on my own father’s career, it is clear to me that the invisible hand that Adam Smith alluded to 237 years ago in The Wealth of Nations is really not all that invisible. It’s the entrepreneurial spirit that drove my dad and countless other entrepreneurs to innovate, reduce marginal costs, bring cheaper products and services to the market, and spur economic growth. That entrepreneurial spirit is now taking us to near zero marginal costs and into a new economic era of history where more goods and services will be nearly free and shared on a Collaborative Commons.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

accounting loophole / creative accounting, Albert Einstein, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, Boris Johnson, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, high net worth, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, Kickstarter, labour market flexibility, laissez-faire capitalism, land value tax, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, plutocrats, Plutocrats, popular capitalism, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

But isn’t this hopelessly idealistic? Anyway, don’t the differences in the quality of work that people do simply reflect differences in intelligence and effort? And doesn’t the division of labour make for economic efficiency, from which, supposedly, we all benefit? Let’s look at these objections. Isn’t the unequal division of labour a reflection of differences in ability and effort? In 1776, in The Wealth of Nations, Adam Smith famously analysed the benefits of division of labour through his example of the pin factory. Splitting the manufacture into 18 different operations, carried out repetitively and covered by about 10 workers, allowed them to produce over 48,000 pins per day, whereas if each worker had to do all 18 operations on each pin from start to finish before moving on to the next they would scarcely have produced 20 a day.

The proportion of part-timers in the workforce has also risen in the US in the last 40 years. 13 Tawney, R.H. (2004) [1920] The acquisitive society, Mineola, NY: Harcourt Brace and Howe. 14 Hudson, M. (2008) http://dandelionsalad.wordpress.com/2008/09/08/’modern-debt-peonage”-economic-democracy-is-turning-into-a-financial-oligarchy/. Chapter Four: For rent … for what? 15 Smith, A. (1976) [1776] The wealth of nations, ed. E. Cannan, Chicago, IL: University of Chicago Press, Bk I, ch V, p 56. 16 Paine, T. (1797) Agrarian justice, paragraph 11, http://geolib.pair.com/essays/paine.tom/agjst.html. 17 Churchill, W. (1909) The people’s rights, ch 4, http://www.wealthandwant.com/docs/Churchill_TPL.html. 18 Tawney, R.H. (2004) [1920] The acquisitive society, Mineola, NY: Harcourt Brace and Howe. 19 http://www.richest-people.co.uk/duke-of-westminster/. 20 Mill, J.S. (1965) Principles of political economy, in Collected Works, ed.

19 For a fuller discussion of these possibilities see Wright, E.O. (2000) Class counts, Cambridge: Cambridge University Press. 20 Orton, M and Rowlingson, K. (2007) Public attitudes to inequality, York: Joseph Rowntree Foundation; Horton, L. and Bamfield, T. (2009) Understanding attitudes to tackling economic inequality, York: Joseph Rowntree Foundation; Miller, D. (1999) Principles of social justice, Cambridge, MA: Harvard University Press. 21 See Robert Jackall’s wonderful study of corporate managers in the US in his 1988 book, Moral mazes, Oxford: Oxford University Press. 22 Gomberg, P. (2007) How to make opportunity equal, Oxford: Blackwell; Sayer, A. (2009) ‘The injustice of unequal work’, Soundings, 43, pp. 102–13. 23 Horton and Bamfield (2009). 24 Gomberg (2007). 25 Gomberg (2007). 26 Smith, A. (1976) [1776], The wealth of nations, ed. E. Cannan, Chicago, IL: University of Chicago Press, vol 2, bk V, ch i, pp 302–3. 27 Murphy, J.B. (1993) The moral economy of labor, New Haven, CT: Yale University Press. 28 Smith (1976) [1776], vol 1, bk I, ch ii, pp 19–20. 29 Feinstein, L. (2003) ‘Inequality in the early cognitive development of British children in the 1970 cohort’, Economica, 70, pp 73–97. See also Bruenig, M. (2014) ‘America’s class system across the life cycle’, Demos, 25 March, http://www.demos.org/blog/3/25/14/americas-class-system-across-life-cycle. 30 Aldridge, S. (2004) ‘Life chances and social mobility: an overview of the evidence’, London: Prime Minister’s Strategy Unit, Cabinet Office, http://www.cabinetoffice.gov.uk/media/cabinetoffice/strategy/assets/lifechances_socialmobility.pdf; Erikson, R. and Goldthorpe, J.H. (1992) The constant flux: A study of class mobility in industrial societies, Oxford: Clarendon Press; Inequality Briefing 39 (2014) ‘What people in the UK earn depends on what their parents earned’, http://inequalitybriefing.org/graphics/briefing_39_peoples_income_reflects_what_their_parents_earned.pdf 31 Lareau, A. (2003) Unequal childhoods: Class, race and family life, California: University of California Press; Walkerdine, V. and Lucey, H. (1989) Democracy in the kitchen, London: Virago; Bourdieu, P. and Passeron, J.


pages: 376 words: 118,542

Free to Choose: A Personal Statement by Milton Friedman, Rose D. Friedman

affirmative action, agricultural Revolution, air freight, back-to-the-land, bank run, banking crisis, business cycle, Corn Laws, Fractional reserve banking, full employment, German hyperinflation, invisible hand, means of production, minimum wage unemployment, oil shale / tar sands, oil shock, price stability, Ralph Nader, RAND corporation, rent control, road to serfdom, Sam Peltzman, school vouchers, Simon Kuznets, The Wealth of Nations by Adam Smith, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration

The story of the United States is the story of an economic miracle and a political miracle that was made possible by the translation into practice of two sets of ideas—both, by a curious coincidence, formulated in documents published in the same year, 1776. One set of ideas was embodied in The Wealth of Nations, the masterpiece that established the Scotsman Adam Smith as the father of modern economics. It analyzed the way in which a market system could combine the freedom of individuals to pursue their own objectives with the extensive cooperation and collaboration needed in the economic field to produce our food, our clothing, our housing. Adam Smith's key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit. No external force, no coercion, no violation of freedom is necessary to produce cooperation among individuals all of whom can benefit. That is why, as Adam Smith put it, an individual who "intends only his own gain" is "led by an invisible hand to promote an end which was no part of his intention.

"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. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow citizens." —Adam Smith, The Wealth of Nations, vol. I, [>] We cannot indeed depend on benevolence for our dinner—but can we depend wholly on Adam Smith's invisible hand? A long line of economists, philosophers, reformers, and social critics have said no. Self-love will lead sellers to deceive their customers. They will take advantage of their customers' innocence and ignorance to overcharge them and pass off on them shoddy products. They will cajole customers to buy goods they do not want.

The action shall name as defendant the Treasurer of the United States, who shall have authority over outlays by any unit or agency of the Government of the United States when required by a court order enforcing the provisions of this article. The order of the court shall not specify the particular outlays to be made or reduced. Changes in outlays necessary to comply with the order of the court shall be made no later than the end of the third full fiscal year following the court order. NOTES INTRODUCTION 1. Adam Smith, The Wealth of Nations (1776). (All page references are to the edition edited by Edwin Cannan, 5th ed. (London: Methuen & Co., Ltd., 1930). 2. On Liberty, People's ed. (London: Longmans, Green & Co., 1865), p. 6. 3. Wealth of Nations, vol. I, p. 325 (Book II, Chap. III). CHAPTER 1 1. See Hedrick Smith, The Russians (New York: Quadrangle Books/New York Times Book Co., 1976), and Robert G. Kaiser, Russia: The People and the Power (New York: Atheneum, 1976). 2.


Undoing the Demos: Neoliberalism's Stealth Revolution by Wendy Brown

Affordable Care Act / Obamacare, bitcoin, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, corporate governance, credit crunch, crowdsourcing, David Brooks, Food sovereignty, haute couture, immigration reform, income inequality, invisible hand, labor-force participation, late capitalism, means of production, new economy, obamacare, occupational segregation, Philip Mirowski, Ronald Reagan, sexual politics, shareholder value, sharing economy, The Chicago School, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trickle-down economics, Washington Consensus, Wolfgang Streeck, young professional, zero-sum game

“Responsibilization,” in The SAGE Dictionary of Policing, ed. Alison Wakefield and Jenny Fleming (London: SAGE Publications Ltd., 2009), pp. 277–79; See also John Clarke, “Living With/in and Without Neo-Liberalism,” Focaal–European Journal of Anthropology 51 (2008), pp. 135–47; and Ronen Shamir, “The Age of Responsibilization: On Market-Embedded Morality,” Economy and Society 37.1 (2008), pp. 1–19. 240 notes 21. Adam Smith, The Wealth of Nations (Chicago: University of Chicago Press, 1976), p. 477 22. Thus the persistent effort to fathom why working and middle-class voters can often be mobilized “against their interests” operates within an anachronistic paradigm of liberalism; such voters are behaving like good neoliberal subjects. See Thomas Frank, What’s the Matter With Kansas?: How Conservatives Won the Heart of America (New York: Holt, 2004). 23.

See Karl Marx, “Capital,” in The Marx-Engels Reader, volume 1, part 1, chapter 1. 34. Ibid., 1.9.7 35. Ibid., 1.10.4 36. Ibid., 1.9.12–13 37. Ibid., 1.9.15–17 38. Ibid., 1.9,15–18 39. Ibid., 1.9.14 notes 241 40. Laval, L’homme économique; Hirschman, The Passions and the Interests. 41. C. B. MacPherson, The Political Theory of Possessive Individualism: Hobbes to Locke (Oxford: Oxford University Press, 1962), p. 3. 42. Smith, The Wealth of Nations. 43. Marx, The German Ideology. 44. In chapter 2 of the Wealth of Nations, Smith writes: “whether this propensity [to truck and barter] be one of those original principles in human nature of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to inquire.” (Note how this modifies the Aristotelian move — resting the putatively distinctive human qualities, reason and speech, at the base of our economic rather than our political nature.) 45.

Hunger, thirst, the passion which unites the two sexes, and the dread of pain, prompt us to apply those means for their own sakes, and without any consideration of their tendency to those beneficent ends which the great Director of nature intended to produce by them.” Adam Smith, Theory of Moral Sentiments (Indianapolis: Liberty Classics, 1976), p. 378. Useful considerations of Smith’s account of human nature include Samuel Fleischacker, On Adam Smith’s Wealth of Nations: A Philosoph­ical Companion (Princeton: Princeton Univ. Press, 2004) and Manfred J. Holler, “Adam Smith’s Model of Man and Some of its Consequences,” Homo Oeconomicus 23.3 (2006), pp. 467–88. 242 notes 46. John Locke, Two Treatises of Government, in Political Writings, ed. David Wooston (New York: Penguin, 1993). 47. Foucault says that interest is what drives us into the social contract for Locke.


The New Enclosure: The Appropriation of Public Land in Neoliberal Britain by Brett Christophers

Boris Johnson, Capital in the Twenty-First Century by Thomas Piketty, Corn Laws, credit crunch, cross-subsidies, Diane Coyle, estate planning, ghettoisation, Hernando de Soto, housing crisis, income inequality, invisible hand, land reform, land tenure, land value tax, late capitalism, market clearing, Martin Wolf, New Journalism, New Urbanism, off grid, offshore financial centre, performance metric, Philip Mirowski, price mechanism, price stability, profit motive, Right to Buy, Skype, sovereign wealth fund, special economic zone, the built environment, The Wealth of Nations by Adam Smith, Thorstein Veblen, urban sprawl, wealth creators

Massey, ‘The Pattern of Landownership and Its Implications for Policy’, Built Environment 6 (1980), pp. 263–71, at p. 269. 1 Ibid., p. 270. 2 A. Chakrabortty, ‘We Need the State Now More Than Ever. But Our Belief in It Has Gone’, Guardian, 1 February 2017. 1 M. Rothbard, Economic Thought Before Adam Smith: An Austrian Perspective on the History of Economic Thought, Volume I (Aldershot: Edward Elgar, 1995), p. xii. 2 D. Reisman, ‘Adam Smith on Market and State’, Journal of Institutional and Theoretical Economics 154 (1998), pp. 357–83, at p. 374. 1 A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Edinburgh: Thomas Nelson/Peter Brown, 1831), p. 303. 2 Reisman, ‘Adam Smith on Market and State’, p. 375. 3 On infrastructure, see P. O’Neill, ‘The Financialisation of Infrastructure: The Role of Categorisation and Property Relations’, Cambridge Journal of Regions, Economy and Society 6 (2013), pp. 441–54. 1 See, for example, C.

Those concerned by the disposal of public land often warn that it is an ‘irreplaceable asset’ with which we would do well to be much more careful.2 And they are right to do so. But the land itself is not the only such asset. Also irreplaceable, and arguably more significant, is the particular capacity for public self-determination conferred by state ownership and control of the land – even if only ‘potentially’. Economic disorder There is a widely cited passage from Adam Smith’s The Wealth of Nations that reads as follows: As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them.

Holton, ‘British Housebuilders Hit by Land-Banking Review’, 22 November 2017, at uk.reuters.com. Letwin delivered a draft report in June 2018, just as this book was going to press. See O. Letwin, Independent Review of Build Out Rates: Draft Analysis. 3 Cited in R. Sylvester, A. Thomson, F. Elliott and T. Knowles, ‘Greedy House Developers Face Losing Right to Build’, The Times, 31 January 2018. 1 A. Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (Edinburgh: Thomas Nelson/Peter Brown, 1831), p. 21. 2 For example, B. Christophers, ‘On Voodoo Economics: Theorising Relations of Property, Value and Contemporary Capitalism’, Transactions of the Institute of British Geographers 35 (2010), pp. 94–108. Note that ‘rentier capitalism’ does not necessarily signify the prominence of land rents; it denotes the significance of economic rent in general, where rent is understood as value captured by virtue of monopoly ownership of a scarce asset.


Who Rules the World? by Noam Chomsky

"Robert Solow", Albert Einstein, anti-communist, Ayatollah Khomeini, Berlin Wall, Bretton Woods, British Empire, capital controls, corporate governance, corporate personhood, cuban missile crisis, deindustrialization, Donald Trump, Doomsday Clock, Edward Snowden, en.wikipedia.org, facts on the ground, failed state, Fall of the Berlin Wall, Howard Zinn, illegal immigration, Intergovernmental Panel on Climate Change (IPCC), invisible hand, liberation theology, Malacca Straits, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, Nelson Mandela, nuclear winter, Occupy movement, oil shale / tar sands, one-state solution, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, Ralph Waldo Emerson, Ronald Reagan, South China Sea, Stanislav Petrov, structural adjustment programs, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trade route, union organizing, uranium enrichment, wage slave, WikiLeaks, working-age population

It is small wonder that the “campaign of hatred” against the United States that concerned Eisenhower was based on the recognition that the United States supports dictators and blocks democracy and development, as do its allies. In Adam Smith’s defense, it should be added that he recognized what would happen if Britain followed the rules of sound economics, now called “neoliberalism.” He warned that if British manufacturers, merchants, and investors turned abroad, they might profit but England would suffer. But he felt that they would be guided by a home bias, so that as if by an “invisible hand” England would be spared the ravages of economic rationality. The passage is hard to miss. It is the one occurrence of the famous phrase “invisible hand” in The Wealth of Nations. The other leading founder of classical economics, David Ricardo, drew similar conclusions, hoping that what is called “home bias” would lead men of property to “be satisfied with the low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations”—feelings that, he added, “I should be sorry to see weakened.”16 Their predictions aside, the instincts of the classical economists were sound.

Jo Ann Boydston (Carbondale: Southern Illinois University Press, 1987), 270.   6. Randolph Bourne, “Twilight of Idols,” Seven Arts, October 1917, 688–702.   7. Michael Crozier, Samuel P. Huntington, and Joji Watanuke, The Crisis of Democracy: Report on the Governability of Democracies to the Trilateral Commission (New York: New York University Press, 1975), http://www.trilateral.org/download/doc/crisis_of_democracy.pdf.   8. Adam Smith, The Wealth of Nations (New York: Bantam Classics, 2003), 96.   9. Gordon S. Wood, The Creation of the American Republic, 1776–1787 (New York: W. W. Norton, 1969), 513–14. Lance Banning, in The Sacred Fire of Liberty: James Madison and the Founding of the Federal Republic (Ithaca: Cornell University Press, 1995), strongly affirms Madison’s dedication to popular rule but nevertheless concurs with Wood’s assessment of the Constitutional design (245). 10.

Thom Shanker, “U.S. Fails to Explain Policies to Muslim World, Panel Says,” New York Times, 24 November 2004. 12. Afaf Lutfi Al-Sayyid Marsot, Egypt in the Reign of Muhammad Ali (Cambridge: Cambridge University Press, 1984). For more extensive discussion on post–World War II Egypt, see Noam Chomsky, World Orders Old and New (New York: Columbia University Press, 1994), chapter 2. 13. Adam Smith, The Wealth of Nations (New York: Bantam Classics, 2003), 309. 14. Noam Chomsky, Year 501: The Conquest Continues (Chicago: Haymarket Books, 2014), 150. 15. Chomsky, Hopes and Prospects, 80. 16. David Ricardo, The Works of David Ricardo: With a Notice of the Life and Writings of the Author by J. R. McCulloch, (London: John Murray, 1846), 77. 17. Tony Magliano, “The Courageous Witness of Blessed Oscar Romero,” National Catholic Reporter, 11 May 2015. 18.


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People, Power, and Profits: Progressive Capitalism for an Age of Discontent by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, battle of ideas, Berlin Wall, Bernie Madoff, Bernie Sanders, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, central bank independence, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crony capitalism, deglobalization, deindustrialization, disintermediation, diversified portfolio, Donald Trump, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, Firefox, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, gig economy, global supply chain, greed is good, income inequality, information asymmetry, invisible hand, Isaac Newton, Jean Tirole, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John von Neumann, Joseph Schumpeter, labor-force participation, late fees, low skilled workers, Mark Zuckerberg, market fundamentalism, mass incarceration, meta analysis, meta-analysis, minimum wage unemployment, moral hazard, new economy, New Urbanism, obamacare, patent troll, Paul Samuelson, pension reform, Peter Thiel, postindustrial economy, price discrimination, principal–agent problem, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Robert Bork, Robert Gordon, Robert Mercer, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, self-driving car, shareholder value, Shoshana Zuboff, Silicon Valley, Simon Kuznets, South China Sea, sovereign wealth fund, speech recognition, Steve Jobs, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, two-sided market, universal basic income, Unsafe at Any Speed, Upton Sinclair, uranium enrichment, War on Poverty, working-age population

As we’ll see, we can create an economy more consonant with what I believe are widely shared basic values—not the greed and improbity so evidenced by our bankers, but the higher values so often expressed by our political, economic, and religious leaders. Such an economy will shape us—make us more like the individuals and society to which we aspire. And in doing so, it will enable us to create a more humane economy, one capable of delivering for the vast majority of our citizens the “middle-class” life to which they aspire, but which has increasingly become out of reach. The Wealth of Nations Adam Smith’s famous book of 1776, The Wealth of Nations, is a good place to start for understanding how nations prosper. It is usually thought of as the beginning of modern economics. Smith rightly criticized mercantilism, the economic school of thought that dominated Europe during the Renaissance and the early industrial period. Mercantilists advocated exporting goods in order to get gold, believing that this would make their economies richer and their nations more politically powerful.

Even to make money by taking advantage of weaknesses, such as gambling or alcohol, requires market power, because in our amoral society, there is an ample supply of those able and willing to do so, and in the absence of market power, profits even for nefarious activities would be driven down to zero. 10.While traditionally, corruption focuses on instances such as these, in fact there is widespread corruption in the private sector, as when an employee (even a CEO) takes advantage of his position to enrich himself, or when a company behaves dishonestly, to enrich itself at the expense of others. 11.Adam Smith, An Inquiry into the Causes of the Wealth of Nations, 1776. 12.Actually, the passage was in response not just to the potential for monopolization, but the pervasive presence of market power that had emerged at the end of the nineteenth century, including in oil, railroads, meatpacking, and tobacco. 13.There are, of course, fluctuations in the risk premium that the market requires, depending on judgment about risk in the economy. 14.For a close look at the corporate sector, see Simcha Barkai, “Declining Labor and Capital Shares” (working paper, 2017).

Alternative Theories to the Sources of the Wealth of Nations I’ve described the real source of the wealth of nations—resting on foundations of science and knowledge and the social institutions that we’ve created to help us not just live peacefully with each other but cooperate together for our common good. I’ve described too the threat to these foundations represented by Trump and his ilk. With an inchoate set of beliefs, untethered to any reality other than serving the economic interests of some shortsighted wealth-grabbers (rent-seekers), success required mounting a wholesale attack on our truth-telling institutions and on democracy itself. THERE’S AN ALTERNATIVE, longer standing and more widespread theory of what gives rise to the wealth of nations, one that unfortunately has held much sway in the country for the past forty years: the view that an economy performs best if things are left entirely, or at least mostly, to unfettered markets.


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Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

O’Rourke described economics as “an entire scientific discipline of not knowing what you’re talking about.”2 Economics focuses on how production and financial systems work or should work. Macroeconomics focuses on growth, employment, production, inflation, and monetary and government budgetary (fiscal) policy. Microeconomics tries to analyze the behavior of firms or individuals, and how things like prices are determined and markets work. In his 1776 work The Wealth of Nations, Adam Smith argued for a self-regulating market system in which narrow self-interest could order economic activity: 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.3 Capitalism created wealth and progress, but at high social cost.

Scott Fitzgerald (1973) The Great Gatsby, Penguin Books, London: 188. 9. Alain de Botton (2002) The Art of Travel, Penguin Books, London: 40. 10. Ibid: 57. 11. Quoted in Andrew Ross Sorkin “A ‘bonfire’ returns as heartburn” (24 June 2008) New York Times. Chapter 1—Mirror of the Times 1. Michael Jackson “Money” from History—Past, Present And Future Book 1 (2009). 2. Adam Smith (1776) An Inquiry into the Nature and Causes of the Wealth of Nations: Book 1 Chapter 2 (http://geolib.com/smith.adam/won1-02.html). 3. Glyn Davies (2002) A History of Money: From Ancient Times to the Present Day, University of Wales Press, Cardiff: 13, 14. 4. Ibid: 18, 20. 5. Christian Oliver and Jan Cienski “North Korea offers ginseng to pay Czech debt” (10 August 2010) Financial Times. 6. Jack Wetherford (1997) The History of Money, Three Rivers Press, New York: Chapter 1. 7.

William Jennings Bryan, Speech concluding debate on the Chicago Platform (9 July 1896), Democratic National Convention, Chicago, Illinois (http://en.wikisource.org/wiki/Cross_of_Gold_Speech). 10. Wetherford, The History of Money: 175–7. 11. Quoted in Brook Larmer “The price of gold” (January 2009) National Geographic: 42. 12. Ian Fleming (2009) Goldfinger, Penguin Books, London: 73. 13. John Updike (1982) Rabbit is Rich, Penguin Books, London: 201. 14. Adam Smith (2007) The Wealth of Nations, Cosmino, New York: 241. 15. John Kenneth Galbraith (1975) Money: Whence It Came, Whence It Went, Houghton Mifflin, Boston: 45. 16. Dylan Grice “Popular delusions: a Minskian roadmap to the next gold mania” (18 November 2009), Société Générale Cross Asset Research. 17. Walsh, Keynes and the Market: 167. 18. George Bernard Shaw (2005) The Intelligent Woman’s Guide to Socialism and Capitalism, Transaction Publishers, New Jersey: 263. 19.


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Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, Plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

Hobsbawm (1969) Industry and Empire from 1750 to the Present Day, Penguin, p. 40. 2 William Baumol (1990) ‘Entrepreneurship: Productive, Unproductive, and Destructive’, Journal of Business Venturing ll: 3–22. 3 Thomas Schweich, ‘Is Afghanistan a Narco-State?’, New York Times, 27 July 2008, at http://www.nytimes.com/2008/07/27/magazine/27AFGHAN-t.html?_r=1. 4 This problem is even more pernicious in developing countries. See Raymond Fisman and Edward Miguel (2008) Economic Gangsters: Corruption, Violence and the Poverty of Nations, Princeton University Press. 5 Adam Smith (1776) An Enquiry into the Nature and Causes of the Wealth of Nations, Vol. I, pp. 363–4. 6 Generally, see Emma Rothschild (2001) Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment, Harvard University Press. The spirit of rationalism underpinned early centralisation and the emergence of unified markets. See Stephan Epstein (2000) Freedom and Growth: The Rise of States and Markets in Europe, 1300–1750, Routledge. 7 J. Bradford DeLong (2000) ‘Cornucopia: The Pace of Economic Growth in the Twentieth Century’, NBER Working Paper No. 7602. 8 Robert Winston (2010) Bad Ideas: An Arresting History of Our Inventions, Bantam Press. 9 Richard G.

The acquirer must leave for his neighbour ‘as good and as large a possession (after the other had taken out his) as before it was appropriated’.11 A shipwrecked sailor, for example, cannot appropriate the only tools available because that would leave others at an unjustifiable disadvantage. Property ownership therefore had limits, but it was justified not as part of God’s dominion but because of the effort made to win it. We earn our rights – a view that has turned out to be durable. Adam Smith, the author of The Wealth of Nations, saw poor workers as victims of the disproportionate allocation of property, unacknowledged Atlases supporting a superstructure of ‘ease and plenty’ above them. Rather than pitiful creatures who deserved their fate, Smith’s humanity and Enlightenment recognition that human beings were of equal worth made him see virtue in the apparently virtueless poor. They were victims of circumstance rather than architects of their own plight.

He was wrong about derivatives alleviating risk, wrong that shareholders would ensure that banks pursued policies that did not destroy wealth, and wrong about the housing boom not being a bubble that would inevitably burst. But the pre-credit crunch, ‘socialist’ Brown was happy to go along with all this. Perhaps we should not be surprised. After all, Edinburgh University was Adam Smith’s alma mater, too, and both Brown and Smith were citizens of Kirkcaldy, and proud of the fact. Greenspan might stress The Wealth of Nations in his belief system; Brown might stress the humanism and commitment to fairness in Smith’s Theory of Moral Sentiments. But both worshipped at the same shrine.8 Brown was flattered that American conservatives thought so highly of the Scottish contribution to the European Enlightenment. He frequently cited (and continues to cite) Gertrude Himmelfarb, who thinks that the mildly progressive, humanitarian but socially conservative Scottish Enlightenment – exemplified by The Theory of Moral Sentiments – is much more enduring than the tough rationalism of the French Enlightenment, which, of course, ended in revolutionary violence.9 Brown saw himself and Greenspan as fellow children of the Enlightenment, who both understood Scotland’s distinctiveness.


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Debt: The First 5,000 Years by David Graeber

Admiral Zheng, anti-communist, back-to-the-land, banks create money, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, colonial rule, commoditize, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, fixed income, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, place-making, Ponzi scheme, price stability, profit motive, reserve currency, Right to Buy, Ronald Reagan, seigniorage, sexual politics, short selling, Silicon Valley, South Sea Bubble, Thales of Miletus, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor, zero-sum game

People continued keeping accounts in the old imperial currency, even if they were no longer using coins.28 Similarly, the Pukhtun men who like to swap bicycles for donkeys are hardly unfamiliar with the use of money. Money has existed in that part of the world for thousands of years. They just prefer direct exchange between equals—in this case, because they consider it more manly.29 The most remarkable thing is that even in Adam Smith’s examples of fish and nails and tobacco being used as money, the same sort of thing was happening. In the years following the appearance of The Wealth of Nations, scholars checked into most of those examples and discovered that in just about every case, the people involved were quite familiar with the use of money, and in fact, were using money—as a unit of account.30 Take the example of dried cod, supposedly used as money in Newfoundland. As the British diplomat A. Mitchell-Innes pointed out almost a century ago, what Smith describes was really an illusion, created by a simple credit arrangement: In the early days of the Newfoundland fishing industry, there was no permanent European population; the fishers went there for the fishing season only, and those who were not fishers were traders who bought the dried fish and sold to the fishers their daily supplies.

In the Middle Ages, for instance, everyone continued to assess the value of tools and livestock in the old Roman currency, even if the coins themselves had ceased to circulate.6 It’s money that had made it possible for us to imagine ourselves in the way economists encourage us to do: as a collection of individuals and nations whose main business is swapping things. It’s also clear that the mere existence of money, in itself, is not enough to allow us see the world this way. If it were, the discipline of economics would have been created in ancient Sumer, or anyway, far earlier than 1776, when Adam Smith’s The Wealth of Nations appeared. The missing element is in fact exactly the thing Smith was attempting to downplay: the role of government policy. In England, in Smith’s day, it became possible to see the market, the world of butchers, ironmongers, and haberdashers, as its own entirely independent sphere of human activity because the British government was actively engaged in fostering it. This required laws and police, but also, specific monetary policies, which liberals like Smith were (successfully) advocating.7 It required pegging the value of the currency to silver, but at the same time greatly increasing the money supply, and particularly the amount of small change in circulation.

The Jewish Quarterly Review, New Series, 55 (2): 117-136. Skinner, Quentin. 1998. Liberty before Liberalism. Cambridge: Cambridge University Press. Smith, Adam. 1761. Theory of moral sentiments. Cambridge: Cambridge University Press (2002 edition). _____. 1762. Lectures on Jurisprudence. Glasgow Edition of the Works and Correspondence of Adam Smith Vol. 5. Indianapolis: Liberty Fund (1982 edition). _____. 1776. An Inquiry into the nature and causes of the wealth of nations. Oxford: Clarendon Press (1976 edition). Smith, Edwin, and Andrew Murray Dale. 1968. The Ila Speaking Peoples Of Northern Rhodesia. Two Volumes. London: Kessinger. Smith, Timothy. 1983. “Wampum as Primitive Valuables.” Research in Economic Anthropology 5: 225-246. Snell, F. J. 1919. The Customs of Old England. London: Methuen.


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Capitalism 3.0: A Guide to Reclaiming the Commons by Peter Barnes

Albert Einstein, car-free, clean water, collective bargaining, corporate governance, corporate personhood, corporate raider, corporate social responsibility, dark matter, diversified portfolio, en.wikipedia.org, hypertext link, Isaac Newton, James Watt: steam engine, jitney, money market fund, new economy, patent troll, profit maximization, Ronald Coase, telemarketer, The Wealth of Nations by Adam Smith, transaction costs, War on Poverty, Yogi Berra

The Ascent of Corporations When I speak in this book of corporations, I’m speaking of a very special institution: the publicly traded stock corporation. This is an institution with a board of directors, a set of executive officers, and a fluctuating set of shareholders to whom the directors and officers are legally accountable. These corporations have an explicit mission: to maximize return to stock owners. When Adam Smith wrote The Wealth of Nations in 1776, there were barely a handful of corporations in Britain or America. The dominant business form was the partnership, in which small groups of people known to each other ran businesses they co-owned. In the public’s mind—as in Smith’s—the corporate form, in which managers sold stock to strangers, was inherently prone to fraud. Numerous scandals supported this view. Yet as the scale of enterprise grew, partnerships proved unable to aggregate enough capital.

| 169 | 170 | Notes to Pages 19–30 119 “It makes no sense . . .”: Bob Dole’s statement on the spectrum giveaway can be found at www.anu.edu.au/mail-archives/link/link9601/0035.html. See also Ralph Kinney Bennett, “The Great Airwaves Giveaway,” Reader’s Digest, June 1996. 119 “If you steal $10 . . .”: Walter Hickel, Crisis in the Commons: The Alaska Solution (Oakland, Calif.: ICS Press, 2002), p. 217. 120 a handful of corporations: Adam Smith, The Wealth of Nations (London: Penguin Books, 1982 [originally published 1776]). 121 corporations were persons”: The Supreme Court decision that established corporate personhood was Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394 (1886). 122 Fortune 500 sales: I computed the annual sales of Fortune 500 corporations from data available (for a fee) on Fortune magazine’s website. See http:// money.cnn.com/magazines/fortune/fortune500_archive/full/1955/index.htm. 123 “So great has been the change . . .”: John Kenneth Galbraith, The Affluent Society (Boston: Houghton Mifflin, 1958), p. 2. 124 scarce factor is trees: See www.worldchanging.com/archives/004143.html. 125 capitalism’s stages: I’m pleased to note that ecological economist Herman Daly has a two-stage schema similar to mine.

.: South End Press, 1997. Shiva, Vandana. Water Wars: Privatization, Pollution, and Profit. Cambridge, Mass.: South End Press, 2002. Shiva, Vandana. Earth Democracy: Justice, Sustainability, and Peace. Cambridge, Mass.: South End Press, 2005. Shulman, Seth. Owning the Future. Boston: Houghton Mifflin, 1999. Simms, Andrew. Ecological Debt: The Health of the Planet and the Wealth of Nations. London: Pluto Press, 2005. Smith, Adam. The Wealth of Nations. London: Penguin Books, 1982. (Originally published 1776) Smith, Adam. The Theory of Moral Sentiments. Amherst, N.Y.: Prometheus Books, 2000. (Originally published 1759) Steinberg, Theodore. Slide Mountain: The Folly of Owning Nature. Berkeley: University of California Press, 1995. Stone, Christopher. Should Trees Have Standing? Toward Legal Rights for Natural Objects.


Year 501 by Noam Chomsky

"Robert Solow", anti-communist, Bartolomé de las Casas, Berlin Wall, Bolshevik threat, Bretton Woods, British Empire, business cycle, capital controls, colonial rule, corporate governance, cuban missile crisis, declining real wages, Deng Xiaoping, deskilling, Dissolution of the Soviet Union, European colonialism, experimental subject, Fall of the Berlin Wall, Howard Zinn, invisible hand, land reform, land tenure, long peace, mass incarceration, means of production, Monroe Doctrine, non-tariff barriers, offshore financial centre, plutocrats, Plutocrats, price stability, Ralph Nader, Ralph Waldo Emerson, RAND corporation, Ronald Reagan, Simon Kuznets, strikebreaker, structural adjustment programs, the scientific method, The Wealth of Nations by Adam Smith, trade liberalization, trickle-down economics, union organizing, War on Poverty, working poor

So it has always been.11 Stigler may well be right, however, that Smith “certainly convinced all subsequent economists.” If so, that is a comment on the dangers of illegitimate idealization that isolates some inquiry from factors that crucially affect its subject matter, a problem familiar in the sciences; in this case, separation of abstract inquiry into the wealth of nations from questions of power: Who decides, and for whom? We return to the point as Adam Smith himself understood it. The wealth of the colonies returned to Britain, creating huge fortunes. By 1700, the East India Company accounted for “above half the trade of the nation,” one contemporary critic commented. Through the following half-century, Keay writes, its shares became the “equivalent of a gilt-edged security, much sought after by trustees, charities and foreign investors.”

Their “conservative” counterparts are only more extreme in their adulation of the Wise Men who are the rightful rulers—in the service of the rich and powerful, a minor footnote regularly forgotten.18 The rabble must be instructed in the values of subordination and a narrow quest for personal gain within the parameters set by the institutions of the masters; meaningful democracy, with popular association and action, is a threat to be overcome. These too are persistent themes, that only take new forms. Adam Smith’s nuanced interpretation of state interference with international trade extended to the domestic scene as well. The praise in his opening remarks for “the division of labor” is well-known: it is the source of “the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied,” and the foundation of “the wealth of nations.” The great merit of free trade, he argued, is that it contributes to these tendencies. Less familiar is his denunciation of the inhuman consequences of the division of labor as it approaches its natural limits.

The policies they contrived were reasonable enough in terms of narrow self-interest, however others may have been harmed, including the general population of England.17 Smith’s conclusion that “Under the present system of management, therefore, Great Britain derives nothing but loss from the dominion which she assumes over her colonies” is highly misleading. From the point of view of policy choices, Great Britain was not an entity. “The wealth of nations” is no concern of the “architects of policy,” who, as Smith insists, seek private gain. The fate of the common people is no more their concern than that of the “mere savages” who stand in the way. If an “invisible hand” sometimes provided others with benefits, that is merely incidental. The basic focus on “wealth of nations” and what “Great Britain derives” is faulty from the start, undermined by illegitimate idealization, though at least it is qualified and corrected in Smith’s fuller discussion.


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Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

Market-led solutions are profoundly amoral and, thus, fail to address many of the key issues of political economy. Market forces may lead to more efficient outcomes, but efficiency says nothing about whether the rewards are fairly distributed. For markets to provide widespread benefits, property rights and the rule of law are most certainly required, but they may not be enough. As Adam Smith wrote in The Wealth of Nations, ‘Wherever there is great property, there is great inequality . . . the affluence of the rich excites the indignation of the poor, who are often driven by want, and prompted by envy, to invade his possessions . . . The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government.’ This view can be taken in one of two ways, depending on which side of the political spectrum you sit.

The US achieved a haul of eighty-three medals in Los Angeles in 1984 but the Soviet Union chose not to turn up for those Games after the US had boycotted the 1980 Moscow Olympics in protest at the Soviet invasion of Afghanistan. To put China’s gold medal haul into context, the Middle Kingdom managed to win only five gold medals in the Seoul Olympics in 1988. 7. For an informed discussion of the client state problem, see Tony Judt’s Post War: A History of Europe since 1945 (William Heinemann, London, 2005). 8. An Inquiry into the Nature and Causes of the Wealth of Nations, first published in 1776. As it turned out, this was a remarkably auspicious year for political and economic developments. 9. See, for example, ‘The market for lemons: quality uncertainty and the market mechanism’, the groundbreaking paper by George A. Akerlof, Quarterly Journal of Economics, 84.3 (1970), pp. 488–500. 10. For an interesting modern discussion of the role of ‘good government’, see Timothy Besley’s ‘ ‘Principled Agents?’

., White Heat: A History of Britain in the Swinging Sixties, Little Brown, London, 2006 Santiso, J., Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free-Marketeers, MIT Press, Boston, 2007 Sen, A., Identity and Violence: The Illusion of Destiny, Allen Lane, London, 2006 Shiller, R., Irrational Exuberance, Princeton University Press, Princeton, 2000 Smith, A., The Wealth of Nations, Books I–III and Books IV–V, Penguin, London, 1999 ———, Theory of Moral Sentiments, Prometheus, London, 2000 Stevenson, D., 1914–1918: The History of the First World War, Allen Lane, London, 2004 Stiglitz, J., Globalisation and its Discontents, Penguin, London, 2003 Stock, J. and Watson, M., Has the Business Cycle Changed and Why? Research Working Paper No. W9127, National Bureau of Economic Research, Cambridge, MA, 2002 Stone, N., World War One: A Short History, Allen Lane, London, 2007 Sturzenegger, F. and Zettelmeyer, J., Debt Defaults and Lessons from a Decade of Crises, MIT Press, Cambridge, MA, 2006 UN, World Population Prospects, 2008 Revision, New York UNCTAD, World Investment Review, Geneva, 2008 and 2009 US Treasury, Report to Congress on International Economic and Exchange Rate Policies, Washington DC, 2009 Walker, I. and Yu, Z., The College Wage Premium and the Expansion of Higher Education in the UK, UCD Geary Institute Discussion Paper, July 2008 Williamson, J., ‘Global Migration’, Finance and Development, 43.3 (2006), IMF, Washington DC Winder, R., Bloody Foreigners: The Story of Immigration to Britain, Little Brown, London, 2004 World Bank, World Development Indicators, Washington DC, 2009 Wolf, M., Why Globalisation Works, Yale University Press, New Haven, 2004 ———, Fixing Global Finance: How to Curb Financial Crises in the 21st Century, Yale University Press, New Haven, 2009 Wu, X. and Perloff, J., China’s Income Distribution Over Time: Reasons for Rising Income Inequality, Department of Agriculture and Resource Economics Paper 977, University of California, Berkeley INDEX Abramovich, Roman (i) Abu Dhabi Investment Authority (ADIA) (i) Addax Petroleum (i) Adecco (i) Afghanistan (i), (ii), (iii), (iv) Africa (i), (ii), (iii), (iv), (v), (vi) Ahearne, Alan G.


pages: 83 words: 26,097

Payoff: The Hidden Logic That Shapes Our Motivations by Dan Ariely

Affordable Care Act / Obamacare, always be closing, David Brooks, en.wikipedia.org, IKEA effect, knowledge economy, knowledge worker, science of happiness, Snapchat, The Wealth of Nations by Adam Smith

I think it’s partially because of the persistence of an industrial-era view of labor that is largely accepted as truth. This view holds that the labor market is a place where individuals exchange work for wages (regardless of how meaningless the labor is) and that people typically don’t really care what happens to their work as long as they are fairly compensated for it. This view of labor as a work-wage exchange springs from Adam Smith’s 1776 magnum opus The Wealth of Nations, in which Smith described the benefits of breaking a large task into components, assigning one person to each specific task, and encouraging them to specialize in performing it. In his famous example of the pin factory, Smith argued that having one person make every part of a pin would result in low productivity. In contrast, he envisioned an efficient workplace built on a division of labor.

CLICK HERE TO SIGN UP or visit us online to sign up at eBookNews.SimonandSchuster.com NOTES 1 As long as you don’t expect a simple answer to this question by the end of the book, we are going to be okay. 2 My father used to say that having very young kids at home is a sure way to get people to stay in the office longer. 3 Roy Baumeister, Kathleen Vohns, Jennifer Aaker, Emily Garbinsky, “Some Key Differences Between a Happy Life and a Meaningful Life,” Journal of Positive Psychology (2013). 4 Dan Ariely, Emir Kamenica, and Drazen Prelec, “Man’s Search for Meaning: The Case of Legos,” Journal of Economic Behavior & Organization (2008). 5 Amy Adkins, “Majority of U.S. Employees Not Engaged Despite Gains in 2014,” Gallup, January 28, 2015, http://www.gallup.com/poll/181289/majority-employees-not-engaged-despite-gains-2014.aspx. 6 Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations,” http://geolib.com/smith.adam/won1-01.html. 7 John Maynard Keynes, The General Theory of Employment, Interest and Money (1936). 8 Michelle Park, “A History of the Cake Mix, the Invention That Redefined ‘Baking,’ ” http://www.bonappetit.com/entertaining-style/pop-culture/article/cake-mix-history. 9 Mike Norton, Daniel Mochon, and Dan Ariely “The IKEA Effect: When Labor Leads to Love,” Journal of Consumer Psychology (2012).

From Marx to Smith and Back One of the early thinkers about the meaning of labor in the modern world was Karl Marx. In 1844, Marx wrote about what he called “the alienation of labor,” which described a situation in which someone works on a small sub-task, in a small part of a larger enterprise. Like the worker in Adam Smith’s pin factory, the laborer has no idea what his project is all about. He doesn’t understand how his work fits in with the enterprise as a whole. It is unclear to him who will use the product he makes, and he generally feels no connection to the organization, the project, the end user, or the outcome. It is clear that Adam Smith and Karl Marx had very different understandings of the nature of productivity. Smith assumed that management could change the structure of the workplace and achieve more efficiency without sacrificing human motivation. Marx, on the other hand, assumed that the efficiency gained from breaking tasks into components would come at the expense of human motivation.


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Money: The Unauthorized Biography by Felix Martin

bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, plutocrats, Plutocrats, private military company, Republic of Letters, Richard Feynman, Robert Shiller, Robert Shiller, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

Even country ladies talked about nothing but stock-jobbing. The new world being forged by this corporate and financial revolution clamoured to be explained and justified—and Mandeville’s outrageous hypothesis appeared to do both at once. When it was taken up by one of the Enlightenment’s morning stars, the Scotsman Adam Smith, it became the basis of a fully fledged theory of monetary society that has survived to this day. In his Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith formulated the first systematic theory linking individual behaviour with the organisation of the economy, and presented the first cogent synthesis of earlier thinkers’ ideas of how the financial revolution had transformed traditional society. The growth of commerce and money, he argued, had “generally introduced order and good government, and with them, the liberty and security of individuals.”30 It was Smith who recognised the historical irony in the accumulation and paying-out of this political dividend.

A version of it can be found in Aristotle’s Politics, the earliest treatment of the subject in the entire Western canon.9 It is the theory developed by John Locke, the father of classical political Liberalism, in his Second Treatise of Government.10 To cap it all, it is the very theory—almost to the letter—advocated by none other than Adam Smith in his chapter “Of the Origin and Use of Money” in the foundation text of modern economics, An Inquiry into the Nature and Causes of the Wealth of Nations: But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations … The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase a part of it. But they have nothing to offer in exchange, except the productions of their respective trades, and the butcher is already provided with all the bread and beer which he has immediate occasion for … In order to avoid such situations, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner, as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few other people would be likely to refuse in exchange for the produce of their industry.11 Smith even shared my friend’s agnosticism as to which commodity would be chosen to serve as money: Many different commodities, it is probable, were successively both thought of and employed for this purpose.

Montesquieu, Mes Pensées, quoted in Hirschman, 1977, p. 74. 5. Montesquieu, Esprit des lois, Book XXII, 13, quoted ibid., p. 74 (where it is accidentally attributed to Book XXII, 14). 6. Montesquieu, Esprit des lois, Book XXI, 20, quoted ibid., pp. 72–3. 7. Ibid. 8. James Carville, quoted in Wall Street Journal, 25 February 1993, p. A1. 9. It was published in England in 1767, nine years before Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. 10. Steuart, 1966, Vol. 1, p. 278. Quoted in Hirschman, 1977, p. 85. 11. Boyer-Xambeu et al., 1994, p. 30. 12. The extent to which the development of finance in England lagged behind Continental Europe until the late seventeenth century is demonstrated by Thomas Mun’s treatment of standard Latin practices such as payments by transfer between bank accounts as unknown in England in his 1621 Discourse on Foreign Trade.


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Deaths of Despair and the Future of Capitalism by Anne Case, Angus Deaton

Affordable Care Act / Obamacare, basic income, Bertrand Russell: In Praise of Idleness, business cycle, call centre, collapse of Lehman Brothers, collective bargaining, Corn Laws, corporate governance, correlation coefficient, crack epidemic, creative destruction, crony capitalism, declining real wages, deindustrialization, demographic transition, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Elon Musk, falling living standards, Fellow of the Royal Society, germ theory of disease, income inequality, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, labor-force participation, low skilled workers, Martin Wolf, Mikhail Gorbachev, obamacare, pensions crisis, randomized controlled trial, refrigerator car, rent-seeking, risk tolerance, shareholder value, Silicon Valley, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, universal basic income, working-age population, zero-sum game

The design of social protection in America, as with much else, owed much to the country’s unwillingness to adopt universal protections that included African Americans. Those explanations are long standing. But there is another story that is more recent in origin: the decline in the power of workers relative to corporations, not only in workplaces and markets but also in Congress. It is to this that we now turn. 15 Firms, Consumers, and Workers IN A FAMOUS PASSAGE in The Wealth of Nations, Adam Smith writes that “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.”1 The use of market power to raise prices remains a concern today, as we have already seen in healthcare. Prices are not the only things at risk from “conspiracy”; so are wages. In one of his last papers, economist Alan Krueger reported his conversation with Jeffrey Suhre, who worked as a nurse in the Critical Care Unit for St.

Emily Guendelsberger, 2019, On the clock: What low-wage work did to me and how it drives America insane, Little, Brown; James Bloodworth, 2018, Hired: Six months undercover in low-wage Britain, Atlantic Books. 16. Durkheim, Le suicide. 17. Dani Rodrik, 1997, Has globalization gone too far?, Institute for International Economics. 18. Sam Quinones, 2015, Dreamland: The true tale of America’s opiate epidemic, Bloomsbury. 19. Adam Smith, 1776, The wealth of nations, bk. 4. 20. Matthew Smith, Danny Yagan, Owen M. Zidar, and Eric Zwick, 2019, “Capitalists in the 21st century,” Quarterly Journal of Economics, 134(4), 1675–745. 21. Kenneth Scheve and David Stasavage, 2016, Taxing the rich: A history of fiscal fairness in the United States and Europe, Princeton University Press. 22. Charles Jordan Tabb, 2007, “The top twenty issues in the history of consumer bankruptcy,” University of Illinois Law Review, 1, 9–30, 29. 23.

Green, and Edward Kaplan, 2003, “The illusion of learning from observational research,” September 10, https://www.researchgate.net/profile/Donald_Green4/publication/228755361_12_The_illusion_of_learning_from_observational_research/links/0046351eaab43ee2aa000000/12-The-illusion-of-learning-from-observational-research.pdf. Chapter 13: How American Healthcare Is Undermining Lives 1. Anne B. Martin, Micah Hartman, Benjamin Washington, Aaron Catlin, and the National Health Expenditure Accounts Team, 2019, “National health care expenditure in 2017: Growth slows to post-Great Recession rates; share of GDP stabilizes,” Health Affairs, 38(1), 96–106, https://doi.org/10.1377/hlthaff.2018.05085. 2. Adam Smith, 1776, The wealth of nations, bk. 4. See our introduction. 3. Robert E. Hall and Charles I. Jones, 2007, “The value of life and the rise in health spending,” Quarterly Journal of Economics, 122(1), 39–72, https://doi.org/10.1162/qjec.122.1.39. 4. Kenneth J. Arrow, 1963, “Uncertainty and the welfare economics of medical care,” American Economic Review, 53(5), 941–73. 5. Authors’ update of Max Roser, 2017, “Link between health spending and life expectancy: US is an outlier,” Our World in Data, May 26, https://ourworldindata.org/the-link-between-life-expectancy-and-health-spending-us-focus.


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The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato

"Robert Solow", Apple II, banking crisis, barriers to entry, Bretton Woods, business cycle, California gold rush, call centre, carbon footprint, Carmen Reinhart, cleantech, computer age, creative destruction, credit crunch, David Ricardo: comparative advantage, demand response, deskilling, endogenous growth, energy security, energy transition, eurozone crisis, everywhere but in the productivity statistics, Financial Instability Hypothesis, full employment, G4S, Growth in a Time of Debt, Hyman Minsky, incomplete markets, information retrieval, intangible asset, invisible hand, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, knowledge worker, natural language processing, new economy, offshore financial centre, Philip Mirowski, popular electronics, profit maximization, Ralph Nader, renewable energy credits, rent-seeking, ride hailing / ride sharing, risk tolerance, shareholder value, Silicon Valley, Silicon Valley ideology, smart grid, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, total factor productivity, trickle-down economics, Washington Consensus, William Shockley: the traitorous eight

Carlota Perez Author of Technological Revolutions and Financial Capital: The Dynamics of Bubble and Golden Ages Technological University of Tallinn, Estonia; London School of Economics, University of Cambridge and University of Sussex, UK February 2013 INTRODUCTION DO SOMETHING DIFFERENT …our disability is discursive: we simply do not know how to talk about things anymore. Tony Judt (2010, 34) A Discursive Battle Never more than today is it necessary to question the role of the State in the economy – a burning issue since Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (Smith, 1776). This is because in most parts of the world we are witnessing a massive withdrawal of the State, one that has been justified in terms of debt reduction and – perhaps more systematically – in terms of rendering the economy more ‘dynamic’, ‘competitive’ and ‘innovative’. Business is accepted as the innovative force, while the State is cast as the inertial one – necessary for the ‘basics’, but too large and heavy to be the dynamic engine.

Equally important, the jobs created by a technology-driven supply chain are much higher paying – but, they must be sustained over entire technology life cycles. (2012, 31) Keynes focused on the need for the State to intervene in order to bring stability and prevent crises, certainly a pressing issue in today’s circumstances.3 But in order to understand the dynamics of such investments, it is fundamental to better understand different perspectives on the theory of economic growth first, and then to establish the role of technology and innovation in driving that economic growth. Technology and Growth While growth and the wealth of nations has been the lead concern of economists since Adam Smith, in the 1950s it was shown by Abramovitz (1956) and Solow (1956) that conventional measures of capital and labour inputs could not account for 90 per cent of economic growth in an advanced industrialized country such as the United States. It was assumed that the unexplained residual must reflect productivity growth, rather than the quantity of factors of production.

Soviet Union 37, 39; market failure theory applied to 61; as measure of innovation performance 34, 41; myth of business investment requirements 53–5; myth of innovation being about 44, 159–60; as not enough 142; of pharmaceutical companies 25–6, 188; R&D/GDP 52; SEMATECH funding 99; spending differences 42; of struggling OECD countries 41; technological change investments 59; in wind energy projects 144–5; worker tax credit 54 R&D/GDP 52 R&D Magazine 63 redistributional policies 31 Reenen, John van 46 Reinert, Erik 9n3, 38n5, 73 Reinhart, Carmen 17–18 renewable energy credits (RECs) 115n1 Renewable Portfolio Standards 114 ‘repatriation tax holiday’ 175 ‘representative’ agent 60 research 60, 78, 84, 136; see also science rewards, socialization of 156 risk 58–62, 70; see also socialization of risk risk landscape 22–3, 58, 194, 198 risk–reward nexus framework 186 risk–reward relationships: Apple and the US government 167–8; collective vs. private benefit 165–6, 196; corporate success resulting in regional economic misery 176–8; need for functional dynamic in 182–3, 197–8; overview 165–7; State recognition in 12 Robinson, Joan 34 Roche 82 Rock, Arthur 94 Rodrik, Dani 27, 28 Rogoff, Kenneth 17–18 Roland, Alex 98n7 Roosevelt, Franklin D. 6, 74 Royal Radar Establishment (RRE) 101 royalties 188–9 Ruegg, Rosalie 148 Ruttan, Vernon 62–3 Sanofi 69 Schmidt, Horace 92, 92–3; see also Apple Schumpeter, Joseph 10n4, 31, 35, 58 Schumpeterian innovation economics: creative destruction concept in 10, 10n4, 58, 165; extended protection in 189; influence of on BNDES 5; investment role in 31; macro models of 44; ‘systems of innovation’ view of 35–6; theory of 36n4 science 49, 51, 57, 59n1, 69; see also research Seagate 97 Segal, David 170 Semiconductor Manufacturing Technology (SEMATECH) consortium 99 Shapiro, Isaac 170–71, 171n2 share buybacks 25–7, 67, 171, 175 shareholder-value ideology 184, 186 Shiman, Philip 98n7 Shi Zhengrong 141, 152–4 Shockley, William 76 Silicon Valley 20, 63, 78, 95 Silver, Jonathan 129, 154 SIRI 103, 105–6, 109 SITRA, Finnish Innovation Fund 190 small and medium enterprises (SMEs) 10, 45–6, 45n6, 111n13 Small Business Administration (US) 94 small business associations 19 Small Business Innovation Development Act of 1982 79 Small Business Innovation Research (SBIR) (US) 20, 47, 79–81, 80, 188 Small Business Investment Company (SBIC) (US) 94 Smith, Adam 30; see also Adam Smith Institute; Inquiry into the Nature and Causes of the Wealth of Nations, An; ‘Invisible Hand’ socialization of risk and privatization of rewards: as cause of inequity and instability 185; direct or indirect returns of 187–91; framework for change of 185–7; income-contingent loans and equity 189–90; in the innovation economy 3; ‘innovation fund’ creation 189; IPR 189; mapping innovative labour into division of rewards 184–5; in pharmaceutical development 181; in public–private partnerships 27; skewed reality of risk and reward 181–5 social vs. private returns on investment 3–4 solar power: see wind and solar power Solow, Robert M. 33–4 Solyndra 129–32, 151, 154–5, 162; see also clean technology; ‘No More Solyndras Act’ Something Ventured, Something Gained (documentary) 78 Sony 108 Soppe, Birgit 146 South Korea 40, 61, 120–21 Soviet Union 37–9, 39, 76 Spain 120n4, 121, 121, 157 Spectrawatt 130n11, 162 spillovers 194 spinoff business model 76 SPINTRONICS 97, 97n5 Sputnik launch 76 Stanford Research Institute (SRI) 105–6; see also SIRI State: administrative role of 6, 12; attracting talent 12; capitalintensive investment by 27; ‘crowding in’ of 5–6, 8; ‘Developmental State’ 10, 37–8, 37–8n5, 40, 68; ‘directionality’ provided by 32n2; ‘dynamizing in’ 8; economic role of 1, 29; flexibility of 195–6; funding: see individual US agencies and departments; industrial directives of 21; as leading entrepreneurial force 193; market creation by 62, 167; organizational dynamics consideration 197; performance indicators lacking for 194; as private sector partner 5; response to criticism 19; responsibilities of 13; scope of endeavours of 18–19, 195; sectors funded by 63, 83, 196; targeted catch-up policies of 40; views of 9; see also ‘entrepreneurial’ State; ‘picking winners’ State development banks 2–3, 5, 122, 137–40, 189–91; see also Brazilian Development Bank (BNDES); China Development Bank (CDB); KfW (German Development Bank) stock market 49–50 Strategic Computing Initiative (SCI) 98–9 strategic management 197 Stumpe, Bent 101 Sullivan, Martin A. 174 SunPower 151 Suntech of China 152–5, 152n5 supply-side policies 83, 113–15, 159 sustainability 117, 119, 123, 195; see also green industrial revolution Swanson, Richard 151 Sweden 121 ‘systems of innovation’ approach: defined 36; foundation of 35–7; market failure approach vs. 9–10, 61–2; need for 22; regional 39; State role in 74; see also innovation; innovation ecosystems; Schumpeterian innovation economics ‘systems’ perspective 196 tariffs 108, 157, 157n6; see also feed-in tariffs Tassey, Gregory 32 tax avoidance: by Apple 11, 12, 171–5, 188; corporate 173–5, 187; ‘tax gap’ 187, 187n1 tax breaks 45–7 tax credits: energy 114, 138; impact of on R&D 28, 52–4; and R&D 111n13; and R&E 110; wind and solar power 126n8, 145, 149 tax cuts 10, 19, 23, 54, 69 taxes: antidumping tariffs 108; business as dependent on 69; ‘carbon tax’ 114; Citizens for Tax Justice 174n5; citizens unawareness of uses of 166; global avoidance schemes 174, 174n5; incentives to biotech firms 81; innovation systems not supported by 187–8; insensitivity of investment to 30n1; IRS 529 plans 111, 111n15; ‘patent box’ policy 51–2; policies impacting SMEs 45; policy 51; ‘repatriation tax holiday’ 175; State return from 165; US tax code 174; see also private vs. social returns; risk–reward nexus framework Taxol 188 Tea Party movement 17 technology: causing creative destruction 58; commissioning of advances in 54; core enabler technologies of Apple 95; dual-use 97; and growth 33–4; impact of regions on national performance 39; interagency collaborations in 74; origins of Apple products 109; revolutions 125, 126; SIRI 103, 105–6; State leadership of strategy for 40; unique situations in 59; see also computer field; wind and solar power technology commercialized: from capacitive sensing to click-wheels 99–101, 100n9, 103; cellular 102, 104, 109; from click-wheels to multi-touch screens 102–3; digital signal processing (DSP) 109; GPS 105; GPTs 62; LCD 107–8; lithium-ion battery 108; resistive touch-screens 101; silicon ICs impact on 98; thin-film transistors (TFTs) 107–8; ‘zero-emission’ electric vehicles 108 technology policy 75 Technology Reinvestment Program (TRP) 97 TFP of India vs. 46 TFTs (thin-film transistors) 107–8 Thomas, Patrick 148 ‘trade wars’ 122, 131, 157 ‘traitorous eight’, the 76 Tulum, Oner: on biopharmaceutical industry 67, 69, 82; NIH spending data compilation of 25, 69; on orphan drugs 81–2 United Kingdom (UK): approach to green initiatives 124–6; BBC 16; BERD (business expenditure on R&D) in 24; Big Society theme of 15–16; clean technology investment by 120; energy strategies of 116; government energy R&D spending 121, 121; green revolution in 120; Medical Research Council (MRC) 20, 67; outsourcing in 16; public R&D spending in 61; R&D/GDP 52; sector specialties of 42; SME government support 45; SME performance in 46 United States: Air Force 98, 104, 105; American Energy Innovation Council (AEIC) 26; Apple’s risk– reward relationship with 167–8; Army 107; competitiveness decline in 176; energy policy 158; energy strategies of 116, 137; funding and innovation in 52; funding sources for basic research R&D in 61; funding sources for R&D in 60, 60–61, 60n2; green revolution in 120; ‘hidden Developmental State’ in 38, 38n5; innovation threatened in 24; systems of innovation in 37; tax code 174; tax system 172; ‘trade wars’ of 122, 131, 157; types of venture capital successes in 49; undermining of innovation in 53; wind capacity of 143; see also taxes; specific agencies and departments of University of Southern California 77–8 UNIX 104 USSR: see Soviet Union US Windpower (later Kenetech) 147 Valentine, Don 94 Vallas, Steven P. 67–8 value: extraction 26, 42, 162; measures of 34 Venrock 94 Vensys Energiesysteme 149 venture capital: in Europe 53; Europe’s lag attributed to lack of 20; exit opportunities 48, 67, 81, 130, 138; failure of 107; government stimulation of 116; impatience of 129–32, 146n2; limited role of 131, 138; myth of as risk loving 47–50, 142, 161–2; and NASDAQ’s coevolution 50; presenting as lead risk taker 183; public vs. private 19, 47; short-termist approach of 108, 127; timing of investment by 23; Venrock 94; see also private sector venture capital sector investment: clean technology 161; green revolution 127–8, 128n9; in Solyndra 130; subsectors of within clean energy 128 venture capital stages of investment 47, 48; early stage and seed funding awards by 80; risk of loss in 48 Vestas: Denmark producing 143; DoE research influence on 148; early years of 147; patents purchased by 145; policy responses by 125, 137; rugged designs of 146 vision: Apple’s 93, 94, 99–100; ‘green’ 116, 120, 123; lack of 107; in nanotechnology 83–4; State’s 21–4, 58, 62–4 Warburg Pincus 50 Washington Consensus 40 Washington Post 57 Wayne, Ronald 89, 89n1; see also Apple welfare state institutions 31 Westerman, Wayne 102–3 Westinghouse 107 wind and solar power: clean technology in crisis 158–9; collective failure in 163; decline of US firms in 144, 144n1; grid parity in 141; networks of learning in 146n2; R&D myth in 159–60; small being beautiful myth in 160–61; solar bankruptcies 153–6; symbiotic innovation ecosystems in 162–3; venture capital myth in 161–2; from ‘Wind Rush’ to rise of China’s wind power sector 144–50; withdrawal of government support 149; see also specific corporations; clean technology wind and solar power markets: competition, innovation and market size 156–8; disrupting existing markets 161; global market for 143; growth opportunities in 156–7; growth powered by crisis 142–4; and manufacturing of 144, 146–7, 153 wind and solar power policies: California’s tax programme 147; fostering development 144–5; providing incentives 149–51; subsidies 148–9, 152; tax credits 145, 149 wind and solar power technology: aerodynamics of 148; computer use in 147–8; C-Si 129, 130n11, 151–2, 158; Denmark’s Gedser design 145; oil company role in 161n8; origins of solar technologies 150–53; remote power applications 150; research behind 148–9; see also clean technology wind energy R&D projects 144–6 Witty, Andrew 66–7 World Trade Organization (WTO) 40 World War II 74 Wozniak, Steve 89, 89n1, 94; see also Apple Wuxi-Guolian 152 Wuxi Suntech 153 Xerox 107 Xerox PARC 24 Zond Corporation 147–8 Table of Contents Halftitle Page Title Page Copyright Dedication Epigraph Contents List of Tables and Figures List of Acronyms Acknowledgements Foreword by Carlota Perez Introduction: Do Something Different A Discursive Battle Beyond Fixing Failures From ‘Crowding In’ to ‘Dynamizing In’ Images Matter Structure of the Book Chapter 1: From Crisis Ideology to the Division of Innovative Labour And in the Eurozone State Picking Winners vs.


pages: 334 words: 98,950

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Thus they were compelled to leave the most profitable ‘high-tech’ industries in the hands of Britain – which ensured that Britain would enjoy the benefits of being on the cutting edge of world development.18 The double life of the British economy The world’s first famous free-market economist, Adam Smith, vehemently attacked what he called the ‘mercantile system’ whose chief architect was Walpole. Adam Smith’s masterpiece, The Wealth of Nations, was published in 1776, at the height of the British mercantile system. He argued that the restrictions on competition that the system was producing through protection, subsidies and granting of monopoly rights were bad for the British economy.* Adam Smith understood that Walpole’s policies were becoming obsolete. Without them, many British industries would have been wiped out before they had had the chance to catch up with their superior rivals abroad.

Pitt is cited as the Earl of Chatham, which he was at the time. 26 The full quotation is: ‘Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness.’ Adam Smith (1776), The Wealth of Nations, the 1937 Random House edition, pp. 347–8. Smith’s view was later echoed by the respected 19th-century French economist Jean-Baptise Say, who is reported to have said that, ‘like Poland’, the US should rely on agriculture and forget about manufacturing. Reported in List (1841), p. 99. 27 Hamilton divided these measures into eleven groups. They are: (i) ‘protecting duties’ (tariffs, if translated into modern terminology); (ii) ‘prohibition of rival articles or duties equivalent to prohibitions’ (import bans or prohibitive tariffs); (iii) ‘prohibition of the exportation of the materials of manufactures’ (export bans on industrial inputs); (iv) ‘pecuniary bounties’ (subsidies); (v) ‘premiums’ (special subsidies for key innovation); (vi) ‘the exemption of the materials of manufactures from duty’ (import liberalization of inputs); (vii) ‘drawbacks of the duties which are imposed on the materials of manufactures’ (tariff rebate on imported industrial inputs); (viii) ‘the encouragement of new inventions and discoveries, at home, and of the introduction into the United States of such as may have been made in other countries; particularly those, which relate to machinery’ (prizes and patents for inventions); (ix) ‘judicious regulations for the inspection of manufactured commodities’ (regulation of product standards); (x) ‘the facilitating of pecuniary remittances from place to place’ (financial development); and (xi) ‘the facilitating of the transportation of commodities’ (transport development).

Protecting industries that do not need protection any more is likely to make them complacent and inefficient, as Smith observed. Therefore, adopting free trade was now increasingly in Britain’s interest. However, Smith was somewhat ahead of his time. Another generation would pass before his views became truly influential, and it was not until 84 years after The Wealth of Nations was published that Britain became a genuine free trading nation. By the end of the Napeolenic Wars in 1815, four decades after the publication of The Wealth of Nations, British manufacturers were firmly established as the most efficient in the world, except in a few limited areas where countries like Belgium and Switzerland possessed technological leads. British manufacturers correctly perceived that free trade was now in their interest and started campaigning for it (having said that, they naturally remained quite happy to restrict trade when it suited them, as the cotton manufacturers did when it came to the export of textile machinery that might help foreign competitors).


pages: 347 words: 99,317

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity by Ha-Joon Chang

affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Thus they were compelled to leave the most profitable ‘high-tech’ industries in the hands of Britain – which ensured that Britain would enjoy the benefits of being on the cutting edge of world development.18 The double life of the British economy The world’s first famous free-market economist, Adam Smith, vehemently attacked what he called the ‘mercantile system’ whose chief architect was Walpole. Adam Smith’s masterpiece, The Wealth of Nations, was published in 1776, at the height of the British mercantile system. He argued that the restrictions on competition that the system was producing through protection, subsidies and granting of monopoly rights were bad for the British economy.iv Adam Smith understood that Walpole’s policies were becoming obsolete. Without them, many British industries would have been wiped out before they had had the chance to catch up with their superior rivals abroad.

Pitt is cited as the Earl of Chatham, which he was at the time. 26 The full quotation is: ‘Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness.’ Adam Smith (1776), The Wealth of Nations, the 1937 Random House edition, pp. 347–8. Smith’s view was later echoed by the respected 19th-century French economist Jean-Baptise Say, who is reported to have said that, ‘like Poland’, the US should rely on agriculture and forget about manufacturing. Reported in List (1841), p. 99. 27 Hamilton divided these measures into eleven groups. They are: (i) ‘protecting duties’ (tariffs, if translated into modern terminology); (ii) ‘prohibition of rival articles or duties equivalent to prohibitions’ (import bans or prohibitive tariffs); (iii) ‘prohibition of the exportation of the materials of manufactures’ (export bans on industrial inputs); (iv) ‘pecuniary bounties’ (subsidies); (v) ‘premiums’ (special subsidies for key innovation); (vi) ‘the exemption of the materials of manufactures from duty’ (import liberalization of inputs); (vii) ‘drawbacks of the duties which are imposed on the materials of manufactures’ (tariff rebate on imported industrial inputs); (viii) ‘the encouragement of new inventions and discoveries, at home, and of the introduction into the United States of such as may have been made in other countries; particularly those, which relate to machinery’ (prizes and patents for inventions); (ix) ‘judicious regulations for the inspection of manufactured commodities’ (regulation of product standards); (x) ‘the facilitating of pecuniary remittances from place to place’ (financial development); and (xi) ‘the facilitating of the transportation of commodities’ (transport development).

Protecting industries that do not need protection any more is likely to make them complacent and inefficient, as Smith observed. Therefore, adopting free trade was now increasingly in Britain’s interest. However, Smith was somewhat ahead of his time. Another generation would pass before his views became truly influential, and it was not until 84 years after The Wealth of Nations was published that Britain became a genuine free trading nation. By the end of the Napeolenic Wars in 1815, four decades after the publication of The Wealth of Nations, British manufacturers were firmly established as the most efficient in the world, except in a few limited areas where countries like Belgium and Switzerland possessed technological leads. British manufacturers correctly perceived that free trade was now in their interest and started campaigning for it (having said that, they naturally remained quite happy to restrict trade when it suited them, as the cotton manufacturers did when it came to the export of textile machinery that might help foreign competitors).


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

Overseeing my schooling on the U.S. economy in addition to Don Kohn was David Stockton, the Fed's chief economist since 2000 and a Fed staffer since 1981. He never sought nor received the press that Fed governors get, but when the governors gave speeches, it was his forecast of the U.S. economy that Fed watchers were getting. We governors learned to see him as the indispensable, behind-the-scenes staffer.* Long before Adam Smith wrote his 1776 masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations, people were arguing over the shortest, straightest path to prosperity. Truly it is an argument without end. But even so, the data point to three important characteristics influencing global growth: (1) the extent of competition domestically, and, *David is so low-key that it wasn't until after we'd worked together closely for years that I learned t h a t his distant forebear, Richard Stockton, was a signer of t h e Declaration of Independence. 250 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright.

When I was a child, jokes about the scruples of used-car salesmen were widespread, but in truth a flagrantly unscrupulous used-car salesman is one who will be out of business before long. These days, almost every professional field is constrained by some regulatory framework, so it's harder than it once was to isolate the reputation effect, but a sector in which one can is e-commerce. Alibris, for example, is a Web site that acts as a broker between sellers and buyers of used books. If you were eager to buy an early edition of Adam Smith's The Wealth of Nations, you might search on Alibris for the names of booksellers around the country who had copies for sale. Customers are given the opportunity to rate the reliability of booksellers from whom they've purchased at least one book, and those ratings no doubt play an important role in the decision as to which of several booksellers to use. This form of public feedback is a powerful incentive to booksellers to be honest about the condition of their wares, and to fulfill orders fully and promptly.

Yet Scotland, too, has come around to according Smith the kind of honor he deserves. The way to the grave is now marked by a newly installed stone that quotes from The Wealth of Nations, and a college near Kirkcaldy has been renamed after Smith. A ten-foot-tall bronze statue of him is planned for Edinburgh's Royal Mile. Appropriately it is being paid for with 265 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. T H E AGE OF T U R B U L E N C E private funding. And, on a personal note, in late 2004 I was delighted to accept a request from my good friend Gordon Brown, Britain's longtime chancellor of the exchequer and now prime minister, to deliver the first Adam Smith Memorial Lecture in Kirkcaldy. That a leader of Britain's Labour Party, whose roots in Fabian socialism are such a far cry from the tenets espoused by Smith, would sponsor such an occasion is indeed a measure of change.


pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, business cycle, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, full employment, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, Kickstarter, Kitchen Debate, land reform, land tenure, liberal capitalism, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, mass immigration, means of production, megacity, Mikhail Gorbachev, new economy, Pearl River Delta, Pierre-Simon Laplace, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, undersea cable, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, World Values Survey

In religion as in business, state monopolies are inefficient – even if in some cases the existence of a state religion increases religious participation (where there is a generous subsidy from government and minimal control of clerical appointments).43 More commonly, competition between sects in a free religious market encourages innovations designed to make the experience of worship and Church membership more fulfilling. It is this that has kept religion alive in America.44 (The insight is not entirely novel. Adam Smith made a similar argument in The Wealth of Nations, contrasting countries with established Churches with those allowing competition.)45 Yet there is something about today’s American Evangelicals that would have struck Weber, if not Smith, as suspect. For there is a sense in which many of the most successful sects today flourish precisely because they have developed a kind of consumer Christianity that verges on Wal-Mart worship.46 It is not only easy to drive to and entertaining to watch – not unlike a trip to the multiplex cinema, with soft drinks or Starbucks served on the premises.

Ochlocracy (mob rule) This idea was revived in the Renaissance, when Polybius was rediscovered, and passed, meme-like, from the writing of Machiavelli to that of Montesquieu.1 But a cyclical view also arose quite separately in the writings of the fourteenth-century Arab historian Ibn Khaldun and in Ming Neo-Confucianism.2 In his book Scienza nuova (1725), the Italian philosopher Giambattista Vico describes all civilizations as passing through a ricorso with three phases: the divine, the heroic and the human or rational, which reverts back to the divine through what Vico called ‘the barbarism of reflection’. ‘The best instituted governments, like the best constituted animal bodies,’ wrote the British political philosopher Henry St John, Viscount Bolingbroke, in 1738, ‘carry in them the seeds of their destruction: and, though they grow and improve for a time, they will soon tend visibly to their dissolution. Every hour they live is an hour the less that they have to live.’3 In The Wealth of Nations Adam Smith conceived of economic growth – ‘opulence’ as he put it – ultimately giving way to the ‘stationary state’. Idealists and materialists agreed on this one thing. For Hegel and Marx alike, it was the dialectic that gave history its unmistakable beat. History was seasonal for Oswald Spengler, the German historian, who wrote in The Decline of the West (1918–22) that the nineteenth century had been ‘the winter of the West, the victory of materialism and scepticism, of socialism, parliamentarianism, and money’.

The Enlightenment was always most effective when it was being ironical – in Gibbon’s breathtaking chapter on early Christianity (volume I, chapter 15 of his Decline and Fall of the Roman Empire) or in Candide, Voltaire’s devastating mockery of Leibniz’s claim that ‘all is for the best in the best of all possible worlds’.* Yet perhaps the greatest achievement of the era was Smith’s analysis of the interlocking institutions of civil society (The Theory of Moral Sentiments) and the market economy (The Wealth of Nations). Significantly, by comparison with much else that was written in the period, both works were firmly rooted in observation of the Scottish bourgeois world Smith inhabited all his life. But where Smith’s ‘Invisible Hand’ of the market manifestly had to be embedded in a web of customary practice and mutual trust, the more radical Francophone philosophes sought to challenge not just established religious institutions but also established political institutions.


pages: 187 words: 58,839

Status Anxiety by Alain de Botton

hiring and firing, invention of the steam engine, invisible hand, means of production, plutocrats, Plutocrats, Ralph Waldo Emerson, The Wealth of Nations by Adam Smith, Thorstein Veblen

In 1900, a giant Coca-Cola sign was erected on one side of Niagara Falls, while an advert for Mennen’s Toilet Powder was suspended over the gorge. 11. When defenders of modern societies have sought to make a case to sceptics, their task has not been difficult: they have had only to point to the enormous wealth that modern societies are able to generate for their members. In his Inquiry into the Nature and Causes of the Wealth of Nations (1776), Adam Smith sarcastically compared the awe-inspiring productivity of proto-industrial societies with the bare subsistence of primitive hunting-and-gathering ones. The latter were, by Smith’s account, steeped in terrible poverty. Harvests rarely yielded enough food, there were chronic shortages of basic necessities and, in times of serious crisis, children, the elderly and the poor were often left “to be devoured by wild beasts.”

If we are anguished by the thought of failure, it may be because success seems the only dependable incentive for the world to grant us its goodwill. A family bond, a friendship or a sexual attraction may at times render material incentives unnecessary, but only a reckless optimist would rely on emotional currencies for the regular fulfilment of his or her needs. Humans rarely smile without having some robust reason to do so. 3. Adam Smith, The Wealth of Nations (Edinburgh, 1776): “Man has almost constant occasion for the help of his brethren. [However], it is in vain for him to expect this from their benevolence only. He will be more likely to prevail if he can interest their self-love… . 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.” 4.

In the ancient world, debate raged among philosophers about what was materially necessary for happiness and what unnecessary. Epicurus, for one, argued that simple food and shelter were all that was needed, and that an expensive house and lavish meals could be safely passed up by every rational, philosophically minded person. However, reviewing the argument many centuries later in The Wealth of Nations, Adam Smith wryly pointed out that in modern, materialistic societies, countless things that were no doubt unnecessary from the point of view of physical survival had nonetheless in practical terms come to be seen as “necessaries,” simply because no one could be thought respectable and so lead a psychologically comfortable life without owning them: “By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.


pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, invisible hand, labor-force participation, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Paul Samuelson, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, selection bias, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

Some critics complain, for example, that the explosive growth of CEO pay proves that executive labor markets are not really competitive—that CEOs appoint cronies to their boards who approve unjustifiably large pay packages. We’re also told that industrial behemoths conspire to drive out their rivals, thereby extorting higher prices from captive customers. To be sure, such abuses occur. But they’re no worse now than they’ve always been. As Adam Smith wrote in The Wealth of Nations, “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.”8 CEOs have always appointed people they know to their boards, so that’s not enough to explain recent trends. Critics are also quick to point out that unsuccessful CEOs receive the same huge compensation packages as their more successful counterparts.

Barry Schwartz, The Paradox of Choice: Why More Is Less, New York: Harper Perennial, 2004. 6. The technological changes described by long-tail proponents enable you to make an informed judgment about the extent of my bias. You can review some of The Nepotist’s music videos here: http://thenepotist.com/videos/. 7. Xavier Gabaix and Augustin Landier, “Why Has CEO Pay Increased So Much?” Quarterly Journal of Economics 123.1 (2008): 49–100. 8. Adam Smith, The Wealth of Nations, book 1, chap. 10. 9. The Conference Board, “Departing CEO Age and Tenure,” June 13, 2014, https://www.conference-board.org/retrievefile.cfm?filename=TCB-CW-019.pdf&type=subsite. 10. Thomas Piketty, Capital in the Twenty-First Century, Cambridge, MA: Harvard University Press, 2013. CHAPTER 4: WHY THE BIGGEST WINNERS ARE ALMOST ALWAYS LUCKY 1. High School Baseball Web, “Inside the Numbers,” http://www.hsbaseballweb.com/inside_the_numbers.htm. 2.

Gibson, “Gratuities and Customer Appraisal of Service: Evidence from Minnesota Restaurants,” Journal of Socioeconomics 23 (1994): 287–302. 4. Harvey Hornstein, Cruelty and Kindness, Englewood Cliffs, NJ: Prentice Hall, 1976. 5. See Robert H. Frank, Passions within Reason: The Strategic Role of the Emotions, New York: W. W. Norton, 1988, chap. 4. 6. Robert H. Frank, Thomas Gilovich, and Dennis Regan, “The Evolution of One-Shot Cooperation,” Ethology and Sociobiology 14 (July 1993): 247–56. 7. Adam Smith, The Wealth of Nations, part 4, section 3, Library of Economics and Liberty, http://www.econlib.org/library/Smith/smWN.html. 8. Adam Satariano, Peter Burrows, and Brad Stone, “Scott Forstall, the Sorcerer’s Apprentice at Apple,” Bloomberg Business, October 12, 2011, http://www.bloomberg.com/bw/magazine/scott-forstall-the-sorcerers-apprentice-at-apple-10122011.html. 9. Jay Yarrow, “Tim Cook: Why I Fired Scott Forstall,” Business Insider, December 6, 2012, http://www.businessinsider.com/tim-cook-why-i-fired-scott-forstall-2012–12. 10.


When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A) by Scott McCleskey

Asian financial crisis, asset-backed security, bank run, barriers to entry, Bernie Madoff, break the buck, call centre, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, information asymmetry, invisible hand, Isaac Newton, iterative process, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, place-making, Ponzi scheme, prediction markets, risk tolerance, shareholder value, statistical model, The Wealth of Nations by Adam Smith, time value of money, too big to fail, web of trust

The very thought of imposing mere transparency—to say nothing of actual restrictions— on this market was greeted ferociously not only from the industry but by other government agencies as well.1 The lineage of the notion that regulation reduces the freedom of the market can be traced back through the history of economic thought at least to the Scottish Enlightenment and the birth of modern capitalism, though the connection is actually a bit tenuous. IN THE BEGINNING, THERE WAS ADAM Capitalism existed long before Adam Smith, just as gravity existed long before Isaac Newton. There were even attempts to describe what we now regard as markets and market behavior before The Wealth of Nations was published in 1776. But The Wealth of Nations gave the world an aha! moment when it described, in a mere thousand pages or so, the way that markets worked at that time. And so, we rightly attribute the birth of the theory of free markets to Adam Smith and The Wealth of Nations. Don’t try to read the book, unless you enjoy spending five hours with Smith’s unhealthy fascination with how nails are made. The good news is that people have read the book over the last two centuries and distilled from it the essence of Smith’s economic theory.

The good news is that people have read the book over the last two centuries and distilled from it the essence of Smith’s economic theory. The bad news is that they overdid it and boiled it down to two words: invisible hand. For the ensuing 200-odd years, economic practitioners then reversed the process and expanded those two words into an economic dogma faithful to the original, they think. A lot of nuance was lost in the process. The Wealth of Nations was written at a time when government intervention in the markets didn’t mean pesky regulations here and paperwork there. This was the time of the British East India Company, an absolute governmentimposed monopoly with no legal competitors (unless you count the Dutch East India Company). Smith’s book was written as a repudiation of the prevailing mercantilist system, in which decisions were made by governments rather than by a dispassionate market.

When used this way, regulations actually make the market more efficient, not less. Of course, there are bad regulations as well, such as the one that said you had to buy all your tea from the government monopoly. The point, however, is that regulations are not inherently antithetical to free markets, and that good ones are as necessary to the operation of markets in the real world as traffic signs are necessary to free travel. Smith’s arguments in The Wealth of Nations center on three issues, only one of which is really related directly to markets: the division of labor, the pursuit of self-interest, and free trade. The markets he discusses, it should be remembered, were not specifically capital markets and certainly not capital markets as we understand them today. The market mechanism he described was as much a reference to 18th-century markets in corn as it was to anything else.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Berlin Wall, Bob Noyce, Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, zero-sum game

The person who can best claim credit for founding the discipline is Adam Smith. His modern reputation is of a narrow believer in the free market, but that is a distortion of his views. In The Theory of Moral Sentiments, he writes: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.” And in The Wealth of Nations, he wrote that “No society can surely be flourishing and happy of which the far greater part of its members are poor and miserable.” Adam Smith’s real target was the use of state policy to favour certain industries in the form of monopolies. In The Wealth of Nations, he wrote: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

He spotted the underlying problem of civilisation until that time: the limits on the ability to produce more food. New gadgets such as the seed drill may have helped escape this Malthusian trap, as it became known, but just as important were new crops, and new systems of field rotation that boosted output. Specialisation – dividing work into tasks, with individual workers focusing on each one – is often the key to productivity improvement. It was one of the main insights of Adam Smith’s famous book The Wealth of Nations. And its advantages had been noticed in ancient times. In the Cyropaedia, written by Xenophon in around 370BCE, it was noted that in Persia “there are places even where one man earns a living just by mending shoes, another just by sewing the uppers together, while there is another who performs none of these operations but assembles the parts. Of necessity he who pursues a specialised task will do it best.”16 The long sweep of history This book tells the tale of how humanity moved from trading foodstuffs and the odd axe to developing a modern economy that produces both the giant ships in the port of Singapore and the ability to access much of the world’s knowledge in a hand-held device.

In the mid-18th century, around 70% of humans were still living in “agrarian empires” of one kind or another, whether in China, India, Japan, Russia, or under the Habsburg monarchy.1 The term “revolution” implies a sudden change but that is not what the numbers (such as we have) appear to suggest. British economic growth per capita did not rapidly accelerate in the years after 1760 and may even have slowed (the country had already made a significant switch from agriculture by this stage).2 Adam Smith, whose book The Wealth of Nations appeared in 1776, knew about the steam engine but did not seem to think it heralded a new era. Few steam engines were in use before 1800, as noted in the previous chapter. Nor was change confined to Britain. Other parts of Europe (and some parts of the US) were showing signs of industrialisation in the late 18th century, such as the setting up of textile factories, ironworks and the greater use of coal.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, availability heuristic, Ayatollah Khomeini, Benoit Mandelbrot, Berlin Wall, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, George Akerlof, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta analysis, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

This idea is there in the shadows behind slogans as varied as ‘business is business’ and ‘rising inequality is inevitable in a market economy’. These economists and their supporters from outside economics (there are many) point to the founding father of economics, Adam Smith, who built his magnum opus The Wealth of Nations (1776) on the rock of humans as essentially selfish creatures. Modern economics has returned to this classical tradition, they conclude, after the aberration which began with Karl Marx and ended with the fall of the Berlin Wall, despite the best efforts of John Maynard Keynes to postpone the inevitable. Unfortunately, this version of history goes wrong from the beginning. Adam Smith’s ideas reflected the eighteenth-century intellectual society he lived in and don’t easily translate to our world. The cornerstone of his Enlightenment thinking was the idea of enlightened self-interest, which is not at all the same as selfishness.

The game of roulette is not subject, in this sense, to uncertainty … The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention … About these matters there is no scientific basis on which to form any calculable probability whatsoever. We simply do not know.5 Keynes wrote these words in 1937, in response to criticisms of his General Theory, a book that represented unquestionably the biggest development in economics in the twentieth century – effectively inventing modern macroeconomics – and probably the most important contribution to economics since Adam Smith’s The Wealth of Nations over 150 years earlier. Keynes’s emphasis on the importance of economic and political uncertainty was, unsurprisingly, hugely influential. But not influential enough: the Keynesian view of uncertainty is not our contemporary orthodoxy. Instead the Second World War and its immediate aftermath nurtured a renewed optimism about a science of society. (Ironically, Keynesian economics may have even bolstered this optimism, with its faith in the ability to measure and manage national economic performance.)

.), The Growth of Service Industries (Cheltenham: Edward Elgar), 24. 20 Florio, M. (2006), The Great Divestiture (Cambridge: MIT Press). 21 Much of this section has been influenced by the superb analysis in Hay, C. (2007), Why We Hate Politics (Cambridge: Polity Press), chapters 3 and 5. 22 Lord Falconer, Secretary of State for Constitutional Affairs, quoted in Hay, 93. 5. FREE-RIDING, OR NOT DOING YOUR BIT 1 Quoted in Strain, C. (2016), The Long Sixties (New York: Wiley), 188. 2 Smith, A. (1776), The Wealth of Nations, book 1, chapter X, part II. 3 Weintraub, Stanley, ‘GBS and the Despots’, Times Literary Supplement, 22 August 2011. 4 For the development of economics, a crucial feature of the new understanding of ‘perfect competition’ was the assumption that the contribution of each producer to the market is effectively zero, not just negligible. Much of orthodox producer theory is based on this mathematical error. 5 See Tuck, R. (2008), Free Riding (Cambridge: Harvard University Press).


pages: 495 words: 138,188

The Great Transformation: The Political and Economic Origins of Our Time by Karl Polanyi

agricultural Revolution, Berlin Wall, borderless world, business cycle, central bank independence, Corn Laws, currency manipulation / currency intervention, David Ricardo: comparative advantage, Fall of the Berlin Wall, full employment, inflation targeting, joint-stock company, Kula ring, land reform, land tenure, liberal capitalism, manufacturing employment, new economy, Panopticon Jeremy Bentham, price mechanism, profit motive, Republic of Letters, road to serfdom, Ronald Reagan, the market place, The Wealth of Nations by Adam Smith, trade liberalization, trade route, trickle-down economics, Washington Consensus, Wolfgang Streeck, working poor, Works Progress Administration

The corrective of such a “short-run” perspective would obviously have been the linking up of economic history with social anthropology, a course which was consistently avoided. We cannot continue today on these lines. The habit of looking at the past ten thousand years as well as at the array of early societies as a mere prelude to the true history of our civilization which started approximately with the publication of the Wealth of Nations in 1776, is, to say the least, out of date. It is this episode which has come to a close in our days, and in trying to gauge the alternatives of the future, we should subdue our natural proneness to follow the proclivities of our fathers. But the same bias which made Adam Smith’s generation view primeval man as bent on barter and truck induced their successors to disavow all interest in early man, as he was now known not to have indulged in those laudable passions. The tradition of the classical economists, who attempted to base the law of the market on the alleged propensities of man in the state of nature, was replaced by an abandonment of all interest in the cultures of “uncivilized” man as irrelevant to an understanding of the problems of our age.

Yet, in the last analysis, it was on account of this false appearance that the law of wages could not be based on any rational rule of human behavior, but had to be deduced from the naturalistic facts of the fertility of man and soil, as they were presented to the world by Malthus’s law of population combined with the law of diminishing returns. The naturalistic element in the foundations of orthodox economics was the outcome of conditions primarily created by Speenhamland. It follows that neither Ricardo nor Malthus understood the working of the capitalist system. Not until a century after the publication of the Wealth of Nations was it clearly realized that under a market system the factors of production shared in the product, and as produce increased, their absolute share was bound to rise.* Although Adam Smith had followed Locke’s false start on the labor origins of value, his sense of realism saved him from being consistent. Hence he had confused views on the elements of price, while justly insisting that no society can flourish, the members of which, in their great majority, are poor and miserable. However, what appears as a truism to us was a paradox in his time.

Adam Smith, it was true, treated material wealth as a separate field of study; to have done so with a great sense of realism made him the founder of a new science, economics. For all that, wealth was to him merely an aspect of the life of the community, to the purposes of which it remained subordinate; it was an appurtenance of the nations struggling for survival in history and could not be dissociated from them. In his view, one set of conditions which governed the wealth of nations derived from the improving, stationary, or declining state of the country as a whole; another set derived from the paramountcy of safety and security as well as the needs of the balance of power; still another was given by the policy of the government as it favored town or countryside, industry or agriculture; hence it was only within a given political framework that he deemed it possible to formulate the question of wealth, by which he for one meant the material welfare of “the great body of the people.”


pages: 293 words: 91,412

World Economy Since the Wars: A Personal View by John Kenneth Galbraith

business cycle, central bank independence, full employment, income inequality, James Hargreaves, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, means of production, price discrimination, price stability, road to serfdom, Ronald Reagan, spinning jenny, The Wealth of Nations by Adam Smith, Thorstein Veblen, union organizing, War on Poverty

It had become plain, in turn, that liberal trade and commerce, not the accumulation of bullion, as the conventional wisdom held, was the modern source of national power. Men of irresponsible originality had made the point. Voltaire had observed that "It is only because the English have become merchants and traders that London has surpassed Paris in extent and in the number of its citizens; that the English can place 200 warships on the sea and subsidize allies."2 These views were finally crystallized by Adam Smith in the year of American independence. The Wealth of Nations, however, continued to be viewed with discontent and alarm by the men of the older wisdom. In the funeral elegy for Alexander Hamilton in 1804, James Kent complimented his deceased friend on having resisted the "fuzzy philosophy" of Smith. For another generation or more, or in all western countries, there would be solemn warnings that the notion of a liberal society was a reckless idea.

Success, at least for more than the favored few, was what had to be explained. Enduring success was at odds with all history and could not be expected. This was the legacy of circumstances to ideas. As we shall see, it has enjoyed a remarkable vitality. II In the history of economic thought, Adam Smith (1723–1790), the first great figure in the central economic tradition,3 is counted a hopeful figure. In an important sense, he was. His vision was of an advancing national community, not a stagnant or declining one. His title, An Inquiry into the Nature and Causes of the Wealth of Nations, had an obvious overtone of opulence and well-being. He offered an all but certain formula for economic progress. This was the liberal economic society in which regulation was by competition and the market and not by the state, and in which each man, thrown on his own resources, labored effectively for the enrichment of the society.

But the rule of ideas is only powerful in a world that does not change. Ideas are inherently conservative. They yield not to the attack of other ideas but, as I may note once more, to the massive onslaught of circumstance with which they cannot contend. 3. Economics and the Tradition of Despair ECONOMICS, not entirely by accident, became a subject of serious study at an important turning point in the history of western man. This was when the wealth of national communities began, for the first time, to show a steady and persistent improvement. This change, which in advanced countries like England and Holland came some time in the eighteenth century, must be counted one of the momentous events in the history of the world. "From the earliest times of which we have record—back, say, to two thousand years before Christ—down to the beginning of the eighteenth century, there was no very great change in the standard of living of the average man living in the civilized centers of the earth.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

Unfortunately, for a variety of reasons, some already mentioned by Adam Smith as far back as 1759 in The Theory of Moral Sentiments, and, especially, in 1776 in The Wealth of Nations, and some connected with recent economic and policy developments, this social consciousness is often absent or not evident in the actions of enterprises and individuals. Some recent literature has even argued that altruism may create problems and that greed may be a desirable trait in those who operate in the free market. Some consider greed an incentive to greater effort. Also, some literature has argued that the main goal of private enterprises should be to maximize shareholders’ (and managers’?) returns and that this objective can be satisfied more easily if taxes on profits are reduced and the wages of workers are kept as low as possible. At times Adam Smith’s concept of the “invisible hand” has been interpreted in the aforementioned terms, in the belief, by some, that maximizing Wealth Creation and Government Role 313 shareholders’ returns somehow and inevitably leads to general welfare.

On global goods and global challenges see Kaul et al. editors, 2003 and Kaul and Conceição, editor, 2006. I shall continue to focus here on the activities of national governments. In addition to the essential, original, and most fundamental role of the state described earlier, namely the allocation of resources, a role that had been recognized and described by economists at least since the time when Adam Smith published The Wealth of Nations, two or, perhaps, more additional economic roles have been assigned to the state in the twentieth century by economists who write about market economies in democratic countries. These roles had not existed in the past, at least not in the modern versions. As already mentioned, these main new roles are: (a) the redistribution of income (and wealth) and (b) the stabilization of economic activity.

Skarbek, David, 2014, The Social Order of the Underworld: How Prison Gangs Govern the American Penal System (Oxford, UK and New York, NY: Oxford University Press). Skidelsky, Robert, 2000, John Maynard Keynes: Fighting for Britain, 1937–1946 (London: Macmillan). Slemrod, Joel and Jon Bakija, Taxing Ourselves: A Citizen’s Guide to the Debate over Taxes, Third Edition (Cambridge, MA and London, England: MIT Press). Smith, Adam, 1937, The Wealth of Nations (New York: The Modern Library). [1969] 1976. The Theory of Moral Sentiments (Indianapolis, IN: Liberty Classics). Smith, Vernon L., 2008, Rationality in Economics: Constructivist and Ecological Forms (Cambridge, UK and New York: Cambridge University Press). Solimano, Andres, 2016, Global Capitalism in Disarray: Inequality, Debt and Austerity (Oxford: Oxford University Press) Soll, Jacop, 2014, The Reckoning: Financial Accountability and the Making and Breaking of Nations (London: Allen Lane).


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, Gunnar Myrdal, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, new economy, New Urbanism, Occupy movement, peak oil, phenotype, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, short selling, Silicon Valley, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

While the narrow technical basis and associated skills of the individual tasks did not change that much, the organisation of production through cooperation and the division of labour brought these different tasks together to reap remarkable gains in efficiency and productivity. The costs of commodities in the marketplace fell rapidly to outcompete the traditional craft and artisanal forms of production. This was the division of labour that was not only extensively analysed but also lauded to the heavens by Adam Smith in The Wealth of Nations, published in 1776. In the celebrated case of the pin factory, Smith emphasised how the organised division of labour within the production process led to immense improvements in technical efficiency and labour productivity. By taking advantage of workers’ differing skills and talents, the overall increase in productivity and profitability within what Marx later called ‘the detail division of labour’ within the firm was assured.

This amazingly influential story has held sway for more than two centuries, ever since Adam Smith articulated it so persuasively and brilliantly in The Wealth of Nations. It constitutes the founding myth of liberal economic theory. The liberal political economists mounted a crusade against state interventions in price-fixing markets and against monopoly power from the late eighteenth century onwards. Keynes did not depart too much from it. Even more surprisingly, it is accepted as gospel in Marx’s Capital, though in Marx’s case the reasoning runs that if Adam Smith’s utopian tale was correct, then things would not turn out to be for the benefit of all: the result would be to deepen the class divide of wealth and power and ensure that capital would become ever more crisis-prone as well as powerful. In the wake of the crisis of 2007–9 it became very difficult for economists to stick with their customary storyline.

283 Maddison, Angus 227 Maghreb 174 Malcolm X 291 Maldives 260 Malthus, Thomas 229–30, 232–3, 244, 246, 251 Manchester 149, 159 Manhattan Institute 143 Mansion House, London 201 manufacturing 104, 239 Mao Zedong 291 maquilas 129, 174 Marcuse, Herbert 204, 289 market cornering 53 market economy 198, 205, 276 marketisation 243 Marshall Plan 153 Martin, Randy 194 Marx, Karl 106, 118, 122, 142, 207, 211 and alienation 125, 126, 213 in the British Museum library 4 on capital 220 conception of wealth 214 on the credit system 239 and deskilling 119 on equal rights 64 and falling profits 107 and fetishism 4 on freedom 207, 208, 213 and greed 33 ‘industrial reserve army’ 79–80 and isolation of workers 125 labour theory of value 109 and monetary system reforms 36 monopoly power and competition 135 reality and appearance 4, 5 as a revolutionary humanist 221 and social reproduction 182 and socialist utopian literature 184 and technological innovation 103 and theorists of the political left 54 and the ‘totally developed individual’ 126–7 and world crises xiii; Capital 57, 79–80, 81, 82, 119, 129, 132, 269, 286, 291–2 The Economic and Philosophic Manuscripts of 1844 269, 286 Grundrisse 97, 212–13 Theories of Surplus Value 1 Marxism contradiction between productive forces and social relations 269 ‘death of Marxism’ xii; ecologically sensitive 263 and humanism 284, 286, 287 ‘profit squeeze’ theory of crisis formation 65 traditional Marxist conception of socialism/ communism 91 Marxists 65, 109 MasterCard Priceless 275 Mau Mau movement 291 Melbourne 141 merchants 67 and industrial capital 179 price-gouging customers 54 and producers 74–5 Mercosur 159 Mexican migrants 115, 175, 195–6 Mexico 123, 129, 174 Mexico City riots (1968) x microcredit 194, 198 microfinance 186, 194, 198, 211 Microsoft 131 Middle East 124, 230 Milanovic, Branko 170 military, the capacities and powers 4 dominance 110 and technology 93, 95 ‘military-industrial complex’ 157 mind-brain duality 70 mining 94, 113, 123, 148, 239, 257 MIT (Massachusetts Institute of Technology) 292 Mitchell, David: Cloud Atlas 264 Mitchell, Timothy 122 Modern Times (film) 103 Mondragon 180 monetarism xi monetary wealth and incomes, inequalities in (1920s) x 1071 monetisation 44, 55, 60, 61, 62, 115, 192–3, 198, 235, 243, 250, 253, 261, 262 money abandonment of metallic basis of global moneys 30, 37, 109 circulation of 15, 25, 30–31, 35 coinage 15, 27, 29, 30 commodification of 57 commodity moneys 27–31 creation of 30, 51, 173, 233, 238–9, 240 credit moneys 28, 30, 31, 152 cyber moneys 36, 109–10 electronic moneys 27, 29, 35, 36, 100 and exchange value 28, 35, 38 fiat 8, 27, 30, 40, 109, 233 gap between money and the value it represents 27 global monetary system 46–7 love of money as a possession 34 measures value 25, 28 a moneyless economy 36 oxidisation of 35 paper 15, 27, 29, 30, 31, 37, 40, 45 power of 25, 36, 59, 60, 62, 65–66, 131–6, 245, 266 quasi-money 35 relation between money and value 27, 35 represented as numbers 29–30 and social labour 25, 27, 31, 42, 55, 88, 243 and the state 45–6, 51, 173 storage of value 25, 26, 35 the US dollar 46–7 use value 28 money capital 28, 32, 59, 74, 142, 147, 158, 177, 178 money laundering 54, 109 ‘money of account’ 27–8, 30 monopolisation 53, 145 monopoly, monopolies 77 and competition 131–45, 218, 295 corporate 123 monetary system 45, 46, 48, 51 monopoly power 45, 46, 51, 93, 117, 120, 132, 133–4, 136, 137, 139, 141, 142–3 monopoly pricing 72, 132 natural 118, 132 of state over legitimate use of force and violence 42, 44, 45, 51, 88, 155, 173 see also prices, monopoly monopsony 131 Monsanto 123 Montreal Protocol 254, 259 ‘moral restraints’ 229, 233 mortgages 19, 21, 28, 32, 54, 67, 82, 239 multiculturalism 166 Mumbai 155, 159 Murdoch, Rupert xi Myrdal, Gunnar 150 N NAFTA 159 name branding 31, 139 nano-trading 243 Nation of Islam 291 national debt 45, 226, 227 National Health Service 115 National Labor Relations Board 120 National Security Administration 136 nationalisation 50 nationalism 7, 8, 44, 289 natural resources 58, 59, 123, 240, 241, 244, 246, 251 nature 56 alienation from 263 capital’s conception of 252 capital’s relation to 246–63 commodification of 59 domination of 247, 272 Heidegger on 59, 250 Polanyi on 58 power over 198 process-thing duality 73 and technology 92, 97, 99, 102 Nazis 151 neoclassical economists 109 neocolonialism 143, 201 neoliberal era 128 neoliberal ethic 277 neoliberalisation x, 48 neoliberalism xiii, 68, 72, 128, 134, 136, 176, 191, 234, 281 capitalism 266 consensus 23 counter-revolution 82, 129, 159, 165 political programme 199 politics 57 privatisation 235 remedies xi Nevada, housing in 77 ‘new economy’ (1990s) 144 New York City 141, 150 creativity 245 domestic labour in 196 income inequality 164 rental markets 22 social reproduction 195 Newton, Isaac 70 NGOs (non-governmental organisations) 189, 210, 284, 286, 287 Nike 31 Nkrumah, Kwame 291 ‘non-coincidence of interests’ 25 Nordic countries 165 North America deindustrialisation in 234 food grain exports 148 indigenous population and property rights 39 women in labour force 230 ‘not in my back yard’ politics 20 nuclear weapons 101 Nyere, Julius 291 O Obama, Barack 167 occupational safety and health 72 Occupy movement 280, 292 Ohlin Foundation 143 oil cartel 252 companies 77, 131 ‘Seven Sisters’ 131 embargo (1973) 124 ‘peak oil’ 251–2, 260 resources 123, 240, 257 oligarchy, oligarchs 34, 143, 165, 221, 223, 242, 245, 264, 286, 292 oligopoly 131, 136, 138 Olympic Games 237–8 oppositional movements 14, 162, 266–7 oppression 193, 266, 288, 297 Orwell, George 213 Nineteen Eighty-Four 202 overaccumulation 154 overheating 228 Owen, Robert 18, 184 Oxfam xi, 169–70 P Paine, Tom: Rights of Man 285 Paris 160 riots (1968) x patents 139, 245, 251 paternalism 165, 209 patriarchy 7 Paulson, Hank 47 pauperisation 104 Peabody, George 18 peasantry ix, 7, 107, 117, 174, 190, 193 revolts 202 pensions 134, 165, 230 rights 58, 67–8, 84, 134 people of colour: disposable populations 111 Pereire, Emile 239 pesticides 255, 258 pharmaceuticals 95, 121, 123, 136, 139 Philanthropic Colonialism 211 philanthropy 18, 128, 189, 190, 210–11, 245, 285 Philippines 115, 196 Picasso, Pablo 140–41, 187, 240 Pinochet, Augusto x Pittsburgh 150, 159, 258 planned obsolescence 74 plutocracy xi, xii, 91, 170, 173, 177, 180 Poland 152 Polanyi, Karl 56, 58, 60, 205–7, 210, 261 The Great Transformation 56–7 police 134 brutality 266 capacities and powers 43 powers xiii, 43, 52 repression 264, 280 surveillance and violence 264 violence 266, 280 police-state 203, 220 political economy xiv, 54, 58, 89, 97, 179–80, 182, 201, 206–9 liberal 204, 206, 209 political parties, incapable of mounting opposition to the power of capital xii political representation 183 pollutants 8, 246, 255 pollution 43, 57, 59, 60, 150, 250, 254, 255, 258 Pontecorvo, Gillo 288 Ponzi schemes 21, 53, 54, 243 population ageing 223, 230 disposable 108, 111, 231, 264 growth 107–8, 229, 230–31, 242, 246 Malthus’s principle 229–30 Portugal 161 post-structuralism xiii potlatch system 33 pounds sterling 46 poverty 229 anti-poverty organisations 286–7 and bourgeois reformism 167 and capital 176 chronic 286 eradication of 211 escape from 170 feminisation of 114 grants 107 and industrialisation 123 and population expansion 229 and unemployment 170, 176 US political movement denies assistance to the poor 292–3 and wealth 146, 168, 177, 218, 219, 243 world xi, 170 power accumulation of 33, 35 of capital xii, 36 class 55, 61, 88, 89, 97, 99, 110, 134, 135, 221, 279 computer 105 and currencies 46 economic 142, 143, 144 global 34, 170 the house as a sign of 15–16 of labour see under labour; of merchants 75 military 143 and money 25, 33, 36, 49, 59, 60, 62, 63, 65–6, 245, 266 monopoly see monopoly power; oligarchic 292 political 62, 143, 144, 162, 171, 219, 292 purchasing 105, 107 social 33, 35, 55, 62, 64, 294 state 42–5, 47–52, 72, 142, 155–9, 164, 209, 295 predation, predators 53, 54, 61, 67, 77, 84, 101, 109, 111, 133, 162, 198, 212, 254–5 price fixing 53, 118, 132 price gouging 132 Price, Richard 226, 227, 229 prices discount 133 equilibrium in 118 extortionate 84 food 244, 251 housing 21, 32, 77 land 77, 78, 150 low 132 market 31, 32 and marketplace anarchy 118 monopoly 31, 72, 139, 141 oil 251, 252 property 77, 78, 141, 150 supermarket 6 and value 31, 55–6 private equity firms 101, 162 private equity funds 22, 162 private property and the commons 41, 50, 57 and eradication of usufructuary rights 41 and individual appropriation 38 and monopoly power 134–5, 137 social bond between human rights and private property 39–40 and the state 47, 50, 58, 59, 146, 210 private property rights 38–42, 44, 58, 204, 252 and collective management 50 conferring the right to trade away that which is owned 39 decentralised 44 exclusionary permanent ownership rights 39 and externality effects 44 held in perpetuity 40 intellectual property rights 41 microenterprises endowed with 211 modification or abolition of the regime 14 and nature 250 over commodities and money 38 and state power 40–41, 42–3 underpinning home ownership 49 usufructuary rights 39 privatisation 23, 24, 48, 59, 60, 61, 84, 185, 235, 250, 253, 261, 262, 266 product lines 92, 107, 219, 236 production bourgeois 1 falling value of 107 immaterial 242 increase in volume and variety of 121 organised 2 and realisation 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 regional crises 151 workers’ dispossession of own means of 172 productivity 71, 91, 92, 93, 117, 118, 121, 125, 126, 132, 172, 173, 184, 185, 188, 220, 239 products, compared with commodities 25–6 profitability 92, 94, 98, 102, 103, 104, 106, 112, 116, 118, 125, 147, 184, 191–2, 240, 252, 253, 256, 257 profit(s) banking 54 as capital’s aim 92, 96, 232 and capital’s struggle against labour 64, 65 and competition 93 entrepreneurs 24, 104 falling 81, 107, 244 from commodity sales 71 and money capital 28 monopoly 93 rate of 79, 92 reinvestment in expansion 72 root of 63 spending of 15 and wage rates 172 proletarianisation 191 partial 175, 190, 191 ‘property bubble’ 21 property market boom (1920s) 239 growth of 50 property market crashes 1928 x, 21 1973 21 2008 21–2, 54, 241 property rights 39, 41, 93, 135 see also intellectual property rights; private property property values 78, 85, 234 ‘prosumers’ 237 Proudhon, Pierre-Joseph 183 Prozac 248 public goods 38 public utilities 23, 60, 118, 132 Q quantitative easing 30, 233 R R&D ix race 68, 116, 165, 166, 291 racial minorities 168 racialisation 7, 8, 62, 68 racism 8 Rand, Ayn 200 raw materials 16, 17, 148, 149, 154 Reagan, Ronald x, 72 Speech at Westminster 201 Reagan revolution 165–166 realisation, and production 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 reality contradiction between reality and appearance 4–6 social 27 Reclus, Elisée 140 regional development 151 regional volatility 154 Reich, Robert 123, 188 religion 7 religious affiliation 68 religious hatreds and discriminations 8 religious minorities 168 remittances 175 rent seeking 132–3, 142 rentiers 76, 77, 78, 89, 150, 179, 180, 241, 244, 251, 260, 261, 276 rents xii, 16–19, 22, 32, 54, 67, 77, 78, 84, 123, 179, 241 monopoly 93, 135, 141, 187, 251 repression 271, 280 autocratic 130 militarised 264 police-state 203 violent 269, 280, 297 wage 158, 274 Republican Party (US) 145, 280 Republicans (US) 167, 206 res nullius doctrine 40 research and development 94, 96, 187 ‘resource curse’ 123 resource scarcity 77 revolution, Fanon’s view of 288 revolutionary movements 202, 276 Ricardo, David 122, 244, 251 right, the ideological and political assault on the left xii; response to universal alienation 281 ‘rights of man’ 40, 59, 213 Rio de Janeiro 84 risk 17, 141, 162, 219, 240 robbery 53, 57, 60, 63, 72 robotisation 103, 119, 188, 295 Rodney, Walter 291 romantic movement 261 Roosevelt, Theodore 131, 135 Four Freedoms 201 Rousseau, Jean-Jacques 213, 214 Ruhr, Germany 150 rural landscapes 160–61 Russia 154 a BRIC country 170, 228 collapse of (1989) 165 financial crisis (1998) 154, 232 indebtedness 152 local famine 124 oligarchs take natural resource wealth 165 S ‘S’ curve 225, 230–31 Saint-Simon, Claude de Rouvroy, comte de 183 sales 28, 31, 187, 236 San Francisco 150 Santiago, Chile: street battles (2006–) 185 Sao Paulo, Brazil 129, 195 savings the house as a form of saving 19, 22, 58 loss of 20, 58 private 36 protecting the value of 20 Savings and Loan Crisis (USA from 1986) 18 savings accounts 5, 6 Scandinavia 18, 85, 165 scarcity 37, 77, 200, 208, 240, 246, 260, 273 Schumpeter, Joseph 98, 276 science, and technology 95 Seattle 196 Second Empire Paris 197 Second World War x, 161, 234 Securities and Exchange Commission 120, 195 security xiii, 16, 121, 122, 165, 205, 206 economic 36, 153 food 253, 294, 296 job 273 national 157 Sen, Amartya 208–11, 281 Development as Freedom 208–9 senior citizens 168 Seoul 84 serfdom 62, 209 sexual hatreds and discriminations 8 Shanghai 153, 160 share-cropping 62 Sheffield 148, 149, 159, 258 Shenzhen, China 77 Silicon Valley 16, 143, 144, 150 silver 27–31, 33, 37, 57, 233, 238 Simon, Julian 246 Singapore 48, 123, 150, 184, 187, 203 slavery 62, 202, 206, 209, 213, 268 slums ix, 16, 175 Smith, Adam 98, 125–6, 157, 185, 201, 204 ‘invisible hand’ 141–2 The Wealth of Nations 118, 132 Smith, Neil 248 social distinction 68, 166 social inequality 34, 110, 111, 130, 171, 177, 180, 220, 223, 266 social justice 200, 266, 268, 276 social labour 53, 73, 295 alienated 64, 66, 88 and common wealth 53 creation of use values through 36 expansion of total output 232 household and communal work 296 immateriality of 37, 233 and money 25, 27, 31, 42, 55, 88, 243 productivity 239 and profit 104 and value 26, 27, 29, 104, 106, 107, 109 weakening regulatory role of 109, 110 social media 99, 136, 236–7, 278–9 social movements 162–3 social reproduction 80, 127, 182–98, 218, 219, 220, 276 social security 36, 165 social services 68 social struggles 156, 159, 165, 168 social value 26, 27, 32, 33, 55, 172, 179, 241, 244, 268, 270 socialism 215 democratic xii; ‘gas and water’ 183 socialism/communism 91, 269 socialist revolution 67 socialist totalitarianism 205 society capitalist 15, 34, 81, 243, 259 civil 92, 122, 156, 185, 189, 252 civilised 161, 167 complex 26 demolition of 56 and freedom 205–6, 210, 212 hope for a better society 218 industrial 205 information 238 market 204 post-colonial 203 pre-capitalist 55 primitive 57 radical transformation of 290 status position in 186 theocratic 62 women in 113 work-based 273 world 204 soil erosion 257 South Africa 84–5, 152, 169 apartheid 169, 202, 203 South Asia labour 108 population growth 230 software programmers and developers 115, 116 South Korea 123, 148, 150, 153 South-East Asia 107–8 crisis (1997–8) 154, 232, 241 sovereign debt crises 37 Soviet Bloc, ex-, labour in 107 Soviet Union 196, 202 see also Russia Spain xi, 51, 161 housing market crash (2007–9) 82–3 spatio-temporal fixes 151–2, 153, 154, 162 spectacle 237–8, 242, 278 speculative bubbles and busts 178 stagnation xii, 136, 161–2, 169 Stalin, Joseph 70 standard of life 23, 175 starvation 56, 124, 246, 249, 260, 265 state, the aim of 156–7 brutality 266, 280 and capital accumulation 48 and civil society 156 curbing the powers of capital as private property 47 evolution of the capitalist state 42 and externality effects 44 guardian of private property and of individual rights 42 and home ownership 49–50 interstate system 156, 157 interventionism 193, 205 legitimate use of violence 42, 44, 45, 51, 88, 155, 173 loss of state sovereignty xii; and money 1, 45–6, 51, 173 ‘nightwatchman’ role 42, 50 powers of 42–5, 47–52, 57–8, 65, 72, 142, 155–9, 209, 295 and private property 47, 50, 58, 59, 146, 210 provision of collective and public goods 42–3 a security and surveillance state xiii; social democratic states 85 war aims 44 state benefits 165 state regulatory agencies 101 state-finance nexus 44–5, 46–7, 142–3, 156, 233 state-private property nexus 88–9 steam engine, invention of the 3 steel industry 120, 121, 148, 188 steel production 73–4 Stiglitz, Joseph 132–4 stock market crash (1929) x Stockholm, protests in (2013) 171, 243 strikes 65, 103, 124 sub-prime mortgage crisis 50 suburbanisation 253 supply and demand 31, 33, 56, 106 supply chain 124 supply-side remedies xi supply-side theories 82, 176 surplus value 28, 40, 63, 73, 79–83, 172, 239 surveillance xiii, 94, 121, 122, 201, 220, 264, 280, 292 Sweden 166, 167 protests in (2013) 129, 293 Sweezy, Paul 136 swindlers, swindling 45, 53, 57, 239 ‘symbolic analysts’ 188 Syntagma Square, Athens 266, 280 T Tahrir Square, Cairo 266 Taipei, Taiwan 153 Taiwan 123, 150, 153 Taksim Square, Istanbul 266, 280 Tanzania 291 tariffs 137 taxation 40, 43, 47, 67, 84, 93–4, 106, 133, 150, 155, 157, 167, 168, 172, 190 Taylor, Frederick 119, 126 Taylorism 103 Tea Party faction 205, 280, 281, 292 technological evolution 95–6, 97, 101–2, 109 technological imperatives 98–101 technological innovation 94–5 technology changes involving different branches of state apparatus 93–4 communicative technologies 278–9 and competition 92–3 constraints inhibiting deployment 101 culture of 227, 271 definition 92, 248 and devaluation of commodities 234 environmental 248 generic technologies 94 hardware 92, 101 humanising 271 information 100, 147, 158, 177 military 93, 95 monetary 109 and nature 92, 97, 99, 102 organisational forms 92, 99, 101 and productivity 71 relation to nature 92 research and development 94 and science 95 software 92, 99, 101 a specialist field of business 94 and unemployment 80, 103 work and labour control 102–11 telephone companies 54, 67, 84, 278 Tennessee 148 Teresa, Mother 284 Thatcher, Margaret (later Baroness) x, 72, 214, 259 Thatcherism 165 theft 53, 60, 61, 63 Thelluson, Peter 226, 227 think tanks 143 ‘Third Italy’ 143 Third World debt crisis 240 Toffler, Alvin 237 tolls 137 Tönnies, Ferdinand 122, 125 tourism ix, 16, 140, 141, 187, 236 medical 139 toxic waste disposal 249–50, 257 trade networks 24 trade unions xii, 116, 148, 168, 176, 184, 274, 280 trade wars 154 transportation 23, 99, 132, 147–8, 150, 296 Treasury Departments 46, 156 TRIPS agreement 242 tropical rainforest 253 ‘trust-busting’ 131 trusts 135 Turin, Italy 150 Turkey 107, 123, 174, 232, 280, 293 Tuscany, Italy 150 Tutu, Archbishop Desmond 284 Twitter 236 U unemployment 37, 104, 258, 273 benefits 176 deliberately created 65, 174 high xii, 10, 176 insurance 175 and labour reserves 175, 231 and labour-saving technologies 173 long-term 108, 129 permanent 111 echnologically induced 80, 103, 173, 274 uneven geographical developments 178, 296 advanced and underserved regional economies 149–50 and anti-capitalist movements 162 asset bubbles 243 and capital’s reinvention of itself 147, 161 macroeconomic processes of 159 masking the true nature of capital 159–60 and technological forms 219 volatility in 244 United Fruit 136 United Kingdom income inequality in 169; see also Britain United Nations (UN) 285 United States aim of Tea Party faction 280 banking 158 Bill of Rights 284 Britain lends to (nineteenth century) 153 capital in (1990s) 154 Constitution 284 consumption level 194 global reserve currency 45–6 growth 232 hostility towards state interventions 167 House of Representatives 206 human rights abuses 202 imperial power 46 indebtedness of students in 194 Indian reservations 249 interstate highway system 239 jobless recoveries after recession 172–3 liberty and freedom rhetoric 200–201, 202 Midwest ‘rust belt’ 151 military expenditures 46 property market crashes x, 21–2, 50, 54, 58, 82–3 racial issues 166 Savings and Loan Crisis (from 1986) 18 social mobility 196 social reproduction 196–7 solidly capitalist 166 steel industry 120 ‘symbolic analysts’ 188 ‘trust-busting’ 131 unemployment 108 wealth distribution 167 welfare system 176 universal suffrage 183 urbanisation 151, 189, 228, 232, 239, 247, 254, 255, 261 Ure, Andrew 119 US Congress 47 US dollar 15, 30, 45–6 US Executive Branch 47 US Federal Reserve xi, 6, 30, 37, 46, 47, 49, 132, 143, 233 monetary policy 170–71 US Housing Act (1949) 18 US Treasury 47, 142, 240 use values collectively managed pool of 36 commodification of 243 commodities 15, 26, 35 common wealth 53 creation through social labour 36 and entrepreneurs 23–4 and exchange values 15, 35, 42, 44, 50, 60, 65, 88 and housing 14–19, 21–2, 23, 67 and human labour 26 infinitely varied 15 of infrastructural provision 78 loss of 58 marketisation of 243 monetisation of 243 of money 28 privatised and commodified 23 provision of 111 and revolt of the mass of the people 60 social demand for 81 usufructuary rights 39, 41, 59 usury 49, 53, 186, 194 utopianism 18, 35, 42, 51, 66, 119, 132, 183, 184, 204, 206–10, 269, 281, 282 V value(s) commodity 24, 25 failure to produce 40 housing 19, 20, 22 net 19 production and realisation of 82 production of 239 property 21 relation between money and value 27, 35 savings 20 storing 25, 26, 35 see also asset values; exchange values; social value; use values value added 79, 83 Veblen, Thorstein: Theory of the Leisure Class 274 Venezuela 123, 201 Vietnam, labour in 108 Vietnam War 290 violence 53, 57, 72, 204–5, 286 against children 193 against social movements 266 against women 193 colonial 289–90, 291 and contemporary capitalism 8 culture of 271 of dispossession 58, 59 in a dystopian world 264 and humanism 286, 289, 291 of the liberation struggle 290 militarised 292 as the only option 290–91 political 280 in pursuit of liberty and freedom 201 racialised 291 state’s legitimate use of 42, 44, 45, 51, 88, 155, 173 of technology 271 and wage labour 207 virtual ecological transfer 256 Volcker, Paul 37 W wages 103 basic social wage 103 falling 80, 82 for housework 115, 192–3 low xii, 114, 116, 186, 188 lower bound to wage levels 175 non-payment of 72 and profits 172 reduction in 81, 103, 104, 135, 168, 172, 176, 178 rising 178 and unskilled labour 114 wage demands 150, 274 wage levels pushed up by labour 65 wage rates 103, 116, 172, 173 wage repression 158–9 weekly 71 see also income Wall Street criticised by a congressional committee 239–40 illegalities practised by 72, 77 and Lebed 195 new information-processing technologies 100 Wall Street Crash (1929) x, 47 Wall-E (film) 271 Walmart xii, 75, 84, 103, 131 war on terror 280 wars 8, 60, 229 currency 154 defined 44 monetisation of state war-making activities 44–5 privatisation of war making 235 resource 154, 260 and state aims 44 state financing of 32, 44, 48 and technology 93 trade 154 world 154 water privatisation 235 wave theory 70 wave-particle duality 70 wealth accumulation of 33, 34, 35, 157, 205 creation of 132–3, 142, 214 disparities of 164–81 distribution of 34, 167 extraction from non-productive activities 32 global 34 the house as a sign of 15–16 levelling up of per capita wealth 171 and poverty 146, 168, 177, 218, 219, 243 redistribution of 9, 234, 235 social 35, 53, 66, 157, 164, 210, 251, 265, 266, 268 taking it from others 132–3 see also common wealth weather futures 60 Weber, Max 122, 125 Weimar Republic 30 welfare state 165, 190, 191, 208 Wells Fargo 61 West Germany 153, 154, 161 Whitehead, Alfred North 97 Wilson, Woodrow 201 Wolf, Martin 304n2 Wollstonecraft, Mary: A Vindication of the Rights of Woman 285 women career versus family obligations 1–2 disposable populations 111 exploitation of 193 housework versus wage labour 114–15 oppression against 193 social struggle 168 trading of 62 violence against 193 in the workforce 108, 114, 115, 127, 174, 230 women’s rights 202, 218 workers’ rights 202 working classes and capital 80 consumer power 81 crushing organisation 81 education 183, 184 gentrified working-class neighbourhoods ix; housing 160 living conditions 292 wage repression and consumption 158–9 working hours 72, 104–5, 182, 272–5, 279 World Bank 16, 24, 100, 186, 245 World Trade Organization 138, 242 WPA programmes (1930s) 151 Wright, Frank Lloyd: Falling Water 16 Wriston, Walter 240 Y YouTube 236 Yugoslavia, former 174 Z Zola, Émile 7


pages: 278 words: 74,880

A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Carbon Emissions by Muhammad Yunus

active measures, Bernie Sanders, Capital in the Twenty-First Century by Thomas Piketty, clean water, conceptual framework, crony capitalism, distributed generation, Donald Trump, financial independence, fixed income, full employment, high net worth, income inequality, Indoor air pollution, Internet of things, invisible hand, Jeff Bezos, job automation, Lean Startup, Mark Zuckerberg, megacity, microcredit, new economy, Occupy movement, profit maximization, Silicon Valley, the market place, The Wealth of Nations by Adam Smith, too big to fail, unbanked and underbanked, underbanked, urban sprawl, young professional

In the years to come, as the successes of social businesses continue to multiply and expand, more and more people and organizations will join the cause. Eventually, we’ll wonder why it took so long for the world to recognize the obvious demand for an economic system that is truly dedicated to meeting human needs. 11 REDESIGNING THE WORLD OF TOMORROW THE CONCEPTUAL FRAMEWORK OF CAPITALISM was originally laid out by the great Scottish economist and philosopher Adam Smith, primarily in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations. This framework has been improved and elaborated throughout its long history, but the basic tenets have remained unchanged. Over time, many alternatives to capitalism have been offered and practiced. In the meantime, the world has changed enormously. The need for reviewing and reevaluating the basic structure of capitalism has been felt on many occasions.

Between them, these natural senses of conscience and sympathy ensure that human beings can and do live together in orderly and beneficial social organizations. Smith’s other great book, The Wealth of Nations, departed completely from his thesis on moral sentiments. His thesis in The Wealth of Nations is generally summarized as an argument that all will be well if people are allowed to follow “self-interest.” Whatever Smith had in mind in using the word self-interest, the world has interpreted it as equivalent to profit maximization. In effect, self-interest is viewed as the same as selfishness. As a result, the world beyond self has largely faded away from the business mind. In The Theory of Moral Sentiments, Smith elaborated on the great importance of justice and other moral virtues. But he never reconciled this with the concept of self-interest on which The Wealth of Nations is anchored. If he had used his two books to propose theoretical foundations for two different types of businesses, perhaps the world could have avoided the serious crisis we are facing today.

See International Monetary Fund Impact Hub, 161, 162 Impact Water, 113–114 Industrial Revolution, 98 inequality addressing old ways of, 18 capitalism and, 6–10 inadequate use of, 49 political polarization and, 9 social unrest and, 9 sustainability and, 126 unemployment and, 68 wealth concentration and, 4 information and communication technology (ICT), 174 elections and, 203 Grameen Bank and, 182 Grameen Phone and, 175 health care and, 196 MakeSense and, 187 poverty and, 193 power of, 181–189 wealthy people and, 176 infrastructure, 128 economic growth and, 214 good governance and, 210 government and, 247 investments in, 210 kickbacks from, 211 public-private partnerships and, 211 social business and, 213 transformation in, 225 See also human infrastructure An Inquiry into the Nature and Causes of the Wealth of Nations (Smith), 259 insurance, 192, 193 See also microinsurance International Food Waste Coalition, 139 International Labour Organization (ILO), 68 International Monetary Fund (IMF), 24, 121 Internet of Things, 156 investments banks and, 263 Danone Communities and, 251–252 in infrastructure, 210 for privet sector, 211 social business and, 246 social business funds and, 248 Izumo, Mitsuru, 52 Jackley, Jessica, 183 Jao, Jezze, 159 Jean-Baptiste, Stéphane, 108 job market, 70, 150 Jorgensen, Vidar, 85 Jung, Andrea, 86 Kendzior, Sarah, 146 Kenya, 192 Kilimo Salama, 192 Kiva, 183, 184, 185 Kreyol Essence, 108 Krishna, Suresh, 253 labor, 94 legal systems, 229 financial systems and, 231–236 help from, 236–242 lending, 23–24 livestock, 45 living standards, 8 loans, 88 London School of Economics and Political Science (LSE), 56 low-income people, 4 See also poor people LSE.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

The objective of this kind of modelling is to turn a mystery into a puzzle – to find a problem which is much simpler, which has a defined solution and yet bears sufficient resemblance to the substantive problem to yield insight and illuminate the best course of action. Following Savage, we describe these as ‘small world’ models. From its very beginnings, useful economic theory has generally been of this kind. Adam Smith began The Wealth of Nations by illustrating the concept of the division of labour through a stylised description of a pin factory. There is no evidence that he was describing a real pin factory. In the early nineteenth century, David Ricardo proposed a model of international trade based on comparative advantage which continues to be among the central insights of economics. Two hundred and fifty years before Donald Trump’s presidency, Adam Smith had refuted the mercantilist view of foreign trade as a zero sum game in which one country gained at the expense of a weaker or foolish partner – trade could benefit both parties. 3 Ricardo developed Smith’s argument to show that a country that was more efficient than another country in producing everything could still benefit from trade with the less efficient country, and vice versa. 4 In the style of his times, he illustrated his thesis with a story based on a numerical example.

Humans are distinguished from other mammals by their capacity for communication and coordination. 40 This propensity towards cooperation is not limited to humans, but its scale and extent are rare in the natural world. ‘Eusociality’ describes behaviour in which animals practise a communal division of reproductive and nurturing labour, with multiple generations living together and working to rear the collective young. Eusociality leads to the division of labour, whose critical importance to economic development Adam Smith recognised in the very first pages of The Wealth of Nations . Eusocial species are highly productive, able to undertake complex tasks, and build elaborate artefacts. Eusociality has emerged down two distinct evolutionary pathways. Manifestations of eusociality are found among humans, and to a much smaller extent in some other mammals, and is the product of communication. In humans, the development of highly sophisticated language abilities brought about an order-of-magnitude change in the capacity to achieve the division of labour.

The authors concluded that non-economists did not mainly free ride, but that economists did; when the authors sought to explore the reasoning of both groups they found that ‘Comparisons with the economics graduate students are very difficult. More than one-third of the economists either refused to answer the question regarding what is fair, or gave very complex, uncodable responses. It seems that the meaning of “fairness” in this context was somewhat alien for this group.’ 8 Reciprocity and exchange The evening led the authors to realise that anthropologists and economists are not really so far apart. Adam Smith began The Wealth of Nations with the observation that ‘the propensity to truck, barter and exchange is common to all men’. 9 The classic anthropological study of reciprocity in human relationships is Marcel Mauss’s 1925 essay The Gift . Mauss asked, ‘What power resides in the object that causes its recipient to pay it back?’ 10 ‘The objects are never completely separated from the men who exchange them.’ 11 Mauss’s thesis would be summarised in the popular adage ‘there’s no such thing as a free lunch’, which fifty years later would be the title of a book by Milton Friedman.


pages: 254 words: 72,929

The Age of the Infovore: Succeeding in the Information Economy by Tyler Cowen

Albert Einstein, Asperger Syndrome, business cycle, Cass Sunstein, cognitive bias, David Brooks, en.wikipedia.org, endowment effect, Flynn Effect, framing effect, Google Earth, impulse control, informal economy, Isaac Newton, loss aversion, Marshall McLuhan, Naomi Klein, neurotypical, new economy, Nicholas Carr, pattern recognition, phenotype, placebo effect, Richard Thaler, selection bias, Silicon Valley, social intelligence, the medium is the message, The Wealth of Nations by Adam Smith, theory of mind

So you can think of this book as a rebellion against traditional economics or as a micro-foundation for a better economics or as neuroeconomics; alternatively, I view it as a return home to the original foundations of economics. It may come as a surprise that the origin of the study of economics was substantially psychology, perception, and mental ordering. As I’ve already discussed, Adam Smith, the father of modern economics, wrote not just The Wealth of Nations but also a book on human psychology, namely The Theory of Moral Sentiments. Smith’s life’s work was to mix economic reasoning with Stoic moral philosophy (Seneca, Epictetus, and Marcus Aurelius, plus their French Renaissance successor Montaigne) and applied psychology, most of which he generated from his own reasoning. The Stoics were themselves obsessed with the proper internal order of the mind and in particular how to manage pain, how to deal with what you can never have, and how to lower your expectations so that life seems like a pleasure rather than a burden.

Ostwald, Glenn Gould: The Ecstasy and Tragedy of Genius (New York: W. W. Norton and Co., 1997). On Adam Smith’s view of The Theory of Moral Sentiments, see Ian Simpson Ross, The Life of Adam Smith (Oxford: Clarendon Press, 1995), 177. For various pieces of biographical information on Smith, see adamsmithslostlegacy.com/2008/03/adam-smith-and-tourettes-syndrome.html. On Stewart, see William Robert Scott, Adam Smith as Student and Professor (New York: Augustus M. Kelley, 1965), 77. The John Rae quotation is from John Rae, Life of Adam Smith, chapter 17, online at www.econlib.org/library/YPDBooks/Rae/raeLS17.html#Chapter%2017. And from Stewart, see Dugald Stewart, “Account of the Life and Writings of Adam Smith,” republished in W.P.D. Wightman and J. C. Bryce, eds., Adam Smith: Essays on Philosophical Subjects (Indianapolis: Liberty Classics, 1976), 330.

Marines, 107 value in culture, 9 and framing effects, 79–81, 84–85 and interiority, 63 of stories, 129, 146 Veley, Charles, 104–5 verbal communication, 20, 35 violence in art, 175 Virtual Human Interaction Lab, 86 Wal-Mart, 4, 59 war, 196–97 Warhol, Andy, 166, 191 Watson, John H. (fictional character), 155, 156, 157–59 “weak central coherence” of autistics, 20 “weak executive function” of autistics, 20 The Wealth of Nations (Smith), 124, 167, 215 web access to content, 47, 49–50, 62–63 and attention spans, 53–55 and autistics, 57, 132, 212, 213, 218 and cognitive performance, 52 currency of, 45–47 and education, 112, 113–14 groups and affiliations on, 87–89 and mental ordering, 4–9, 10–12, 13 and political connections, 87–88 popular websites, 46–47 rewiring effect of, 10 size of content, 48 See also specific sites such as Facebook Webern, Anton, 182 Wikipedia, 11, 47, 98–99 “Williams syndrome,” 179 Windows Live, 47 wine experiments, 79–80 Wittgenstein, Ludwig, 166 workplace, 69 written communication, 213.


pages: 540 words: 168,921

The Relentless Revolution: A History of Capitalism by Joyce Appleby

1919 Motor Transport Corps convoy, agricultural Revolution, anti-communist, Asian financial crisis, asset-backed security, Bartolomé de las Casas, Bernie Madoff, Bretton Woods, BRICs, British Empire, call centre, Charles Lindbergh, collateralized debt obligation, collective bargaining, Columbian Exchange, commoditize, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, Doha Development Round, double entry bookkeeping, epigenetics, equal pay for equal work, European colonialism, facts on the ground, failed state, Firefox, fixed income, Ford paid five dollars a day, Francisco Pizarro, Frederick Winslow Taylor, full employment, Gordon Gekko, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, hiring and firing, illegal immigration, informal economy, interchangeable parts, interest rate swap, invention of movable type, invention of the printing press, invention of the steam engine, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeff Bezos, joint-stock company, Joseph Schumpeter, knowledge economy, land reform, Livingstone, I presume, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, moral hazard, Parag Khanna, Ponzi scheme, profit maximization, profit motive, race to the bottom, Ralph Nader, refrigerator car, Ronald Reagan, Scramble for Africa, Silicon Valley, Silicon Valley startup, South China Sea, South Sea Bubble, special economic zone, spice trade, spinning jenny, strikebreaker, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thorstein Veblen, total factor productivity, trade route, transatlantic slave trade, transcontinental railway, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration, Yogi Berra, Yom Kippur War

People could be counted on because they counted their interests. By the mid-eighteenth century Samuel Johnson could casually comment that “there are few ways in which a man can be more innocently employed than in getting money.”3 A decisive cultural shift had clicked into place. At the end of the eighteenth century, the intellectual effort to understand the phenomenon of capitalism found its Aristotle in Adam Smith, whose An Inquiry into the Nature and Causes of the Wealth of Nations appeared in 1776. Smith presented a brilliantly detailed explanation of the causes of the unparalleled wealth in Great Britain. (After the Scottish and English crowns were joined in 1706, England was called Great Britain or the United Kingdom.) Building on the new conception of human beings as responsibly pursuing their own interest, he advocated a system of “natural liberty” because he thought that the “invisible hand” of the market would function better if left free of most regulation.

The idea of men and women as consuming animals with boundless appetites capable of driving the economy to new levels of prosperity excited the imagination of dozens of writers, but they were entrepreneurs, not moralists. The proposition that the wealth of nations began with stimulating wants rather than with organizing production robbed intrusive social legislation of a supporting rationale. Once advocacy of freeing trade became attached to a new explanation of economic growth, the earlier commercial wisdom of carefully managing trade to ensure high prices came under challenge, a century before Adam Smith’s explanation of why freedom was better than control in matters economic. Popular responses to fashion revealed that some demand was elastic. If demand was elastic, then growth and prosperity required attention to people’s tastes and desires.

The English Navigation Laws specified that sugar and tobacco had to be shipped directly to Great Britain, just as any items the colonies might import from Europe had to be landed first in British ports. The British cut back on imports of linen from German and Holland and of wine from France. Port became the favorite drink because of the exceptionally good diplomatic relations between Britain and Portugal. Of course other countries retaliated with their own protective legislation. These were the policies that Adam Smith decried in the Wealth of Nations. Calculating the cost of maintaining British colonies, he argued that the country’s best trading partners were its closest neighbors. A lot of economic developments enhanced the possibility for an Industrial Revolution, though none of them can be seen as a cause per se. Conditions make things possible for causes to work, but they cannot cause anything. First and foremost were the dramatic agricultural changes that cut in half—from 80 to 40 percent—the number of men and women working in agriculture.


Nuclear War and Environmental Catastrophe by Noam Chomsky, Laray Polk

American Legislative Exchange Council, British Empire, cuban missile crisis, David Ricardo: comparative advantage, energy security, Howard Zinn, interchangeable parts, invisible hand, Malacca Straits, mutually assured destruction, Naomi Klein, Occupy movement, oil shale / tar sands, Ralph Nader, Ronald Reagan, South China Sea, The Wealth of Nations by Adam Smith, trade route, University of East Anglia, uranium enrichment, WikiLeaks

There was a sense that things are going to get better, we can do something about it, there’s organizing and government efforts—it’s bad, but we can get out of this. There isn’t that feeling now, and it may be objectively right. If we continue on the path of financialization of the economy and offshoring of production, there’s not going to be very much here for the working population. It’s kind of interesting if you look back at the classical economists, Adam Smith and David Ricardo. They were sort of aware of this—they didn’t put it in precisely these terms—but if you take a look at Adam Smith’s The Wealth of Nations, the famous phrase “invisible hand” appears once. It appears essentially in a critique of what’s going on right now. What he pretty much says is that, in England, if merchants and manufacturers preferred to import from abroad and sell abroad, they might make profit, but it would be bad for England. He says they’re going to have what sometimes is called a home bias—they’ll prefer to do business at home, so as if by an invisible hand, England will be saved the ravages of a global market.82 David Ricardo was even stronger.

This great mortality, however, will every where be found chiefly among the children of the common people, who cannot afford to tend them with the same care as those of better station.” Smith proposed better wages for workers, enabling families to better provide for their children, consequently providing a healthier, more productive workforce. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; repr., London: Methuen, 1904), Library of Economics and Liberty (EconLib.org), s.v. “Adam Smith, Wealth of Nations,” s.v. “I.8 Of the Wages of Labour.” 7. Extraordinary Lives Laray Polk: In your office, among all the reference materials, you have a rather large black-and-white photograph of Bertrand Russell. Did you have the opportunity to meet him? Noam Chomsky: We never met. Our only contact was in 1967, when we were about to issue the “Call to Resist Illegitimate Authority,” advocating support for resistance, not just protest, to the Vietnam War.

It’s rarely recognized that Magna Carta not only laid the basis for what became over centuries formal protection for civil and human rights, but also stressed the preservation of the commons from autocratic destruction and privatization—the Charter of the Forests, one of the two components of Magna Carta.101 In contrast, the US is a business-run society, to an extent beyond any other in the developed world. Enormous power lies in the hands of a highly class-conscious business elite, who, in Adam Smith’s words, are the “principal architects” of policy and make sure that their own interests are “most peculiarly attended to” no matter how “grievous” the effects on others, including the people of their own society and their colonies (Smith’s concern) and future generations (which must be our concern). In the contemporary United States there has been an increasing growth in the power of the ideology of short-term gains, whatever the consequences.


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The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

"Robert Solow", 3D printing, Airbnb, American energy revolution, assortative mating, autonomous vehicles, Bakken shale, barriers to entry, basic income, Bernie Sanders, BRICs, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, creative destruction, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, disruptive innovation, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, gig economy, global supply chain, global value chain, hydraulic fracturing, income inequality, indoor plumbing, industrial robot, intangible asset, interchangeable parts, Internet of things, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low skilled workers, lump of labour, Lyft, manufacturing employment, Marc Andreessen, mass immigration, means of production, new economy, performance metric, pets.com, post-work, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, TaskRabbit, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, uber lyft, very high income, working-age population

POLITICAL EFFECTS OF SCARCITY As the previous section ought to make clear, there is an inevitable political subtext, or even text, to discussions of the economic effects of labour scarcity. Battles over the gains from production are unavoidably political, as is the effort expended by owners of land and capital or by workers to secure the political rights that support scarcity.15 In The Wealth of Nations, Adam Smith mused: We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate … We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things which nobody ever hears of … Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen; who sometimes too, without any provocation of this kind, combine of their own accord to raise the price of their labour … The masters upon these occasions are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen.16 If Smith took it for granted that power naturally rests with the master, that might be because he lived during an era of explosive population growth – of labour abundance – in which workers could exercise very little bargaining power within labour markets.

And the status quo, when it changes, will be pushed in the direction of increased social distance: the use of law and custom to try to push open gaps between societies where technology is closing them, sought because existing social structures are failing to transform new economic possibilities into broad-based income growth. THE WEALTH OF HUMANS In his Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith mused on the way in which market economies translate human impulses into social wealth: [M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them.

Notes Please note that some of the links referenced in this work are no longer active. Abbreviations BEA US Bureau of Economic Analysis BLS US Bureau of Labor Statistics EIA US Energy Information Administration IMF International Monetary Fund NBER National Bureau of Economic Research OECD Organization for Economic Co-operation and Development EPIGRAPH   1.  Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776).   2.  Keynes, John Maynard, ‘Economic Possibilities for our Grandchildren’, Essays in Persuasion (London: Macmillan, 1931). INTRODUCTION   1. ‘The Onrushing Wave’, The Economist, 18 January 2014.   2. ‘Is 4.4 jolt an end to Los Angeles’ “earthquake drought”?’, Los Angeles Times, 17 March 2014.   3. http://www.statista.com/chart/612/newspaper-advertising-revenue-from-1950-to-2012/   4. 


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How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, commoditize, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, negative equity, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, plutocrats, Plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Right to Buy, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Jobs, survivorship bias, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, wealth creators, working poor, yield curve

.† All those fundamental needs supplied, all those goods bought and sold, all those provisions transported at the expense of cash and effort and ingenuity, all those transactions made, and all of it constituting a mechanism that functions so effectively that the good citizens of Paris don’t even notice how dependent they are on it—and the whole mechanism created just by allowing people to trade freely with each other. Economists have a shorthand reference to this epiphanic insight into the power of markets: they call it “Who feeds Paris?” For most people with an interest in economics, there’s a revelatory moment resembling Bastiat’s. The bravura opening of Adam Smith’s The Wealth of Nations, the founding text of economics, has a description of a pin-making factory that is very like Bastiat’s moment of awakening in Paris. The eureka moment isn’t always to do with the power of markets, though that’s a pretty good starting point, since the balance of wants and needs manifested in a functioning market is an extraordinary thing: the contents of Aladdin’s cave, all on sale at an ordinary store near you, and brought there by nothing more than market forces.

A considered argument from the other side of the debate is Paul Collier’s The Bottom Billion, and the annual letter from the Gates Foundation is indispensable reading for anyone interested in the question. The internet offers many superb resources on economics, as well as lively debates that respond to news and data in real time. There is no better place to begin than Twitter: I would start by following Tim Harford, Tyler Cowen, Aditya Chakrabortty, and Paul Kedrosky. Finally, I would urge anyone who’s interested in the subject but hasn’t read The Wealth of Nations to give Adam Smith’s masterwork a go. Smith was a great writer as well as a great thinker, and his book is still fresh and still readable, as well as being a serious candidate for the most influential work of the humanities ever written. Notes 1Grayson Perry and Brian Eno, “How the Internet Has Taught Us We Are All Perverts,” New Statesman, 7 November 2013. 2Daniel, quoted in Michael Lewis, The Big Short: Inside the Doomsday Machine (New York: Norton, 2010), p. 206. 3You can read the original Fortune article at www.awjones.com/images/Fortune_-_The_Jones_Nobody_Keeps_Up_With.pdf. 4See http://www.awjones.com/historyofthefirm.html. 5Frédéric Bastiat, Economic Sophisms, trans.

They are of particular importance at the moment, since historically it’s SMEs that lead the charge when an economy is emerging from recession. Smith, Adam (1723–1790) The founder of modern economics as a field of thought, and author of one of the most important books ever written, The Wealth of Nations (or to give it its full title, An Inquiry into the Nature and Causes of the Wealth of Nations). Everybody should read Smith, because he is such a good writer, still freshly readable to this day, and also because this fundamental text in economics is based on common sense; this in turn gives readers the permission to use their own common sense in thinking about economic questions. It’s also worth reading The Wealth of Nations to see that Smith is much less doctrinally simple-minded than some of the people who claim him for a narrow modern version of neoliberal capitalist economics. He famously said, “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.


Unfinished Empire: The Global Expansion of Britain by John Darwin

Alfred Russel Wallace, British Empire, colonial rule, Corn Laws, David Ricardo: comparative advantage, European colonialism, financial independence, friendly fire, full employment, imperial preference, Khartoum Gordon, Khyber Pass, Kowloon Walled City, land tenure, mass immigration, Nelson Mandela, open economy, plutocrats, Plutocrats, principal–agent problem, quantitative easing, reserve currency, Right to Buy, Scientific racism, South China Sea, special economic zone, spice trade, The Wealth of Nations by Adam Smith, too big to fail, trade route, transcontinental railway, union organizing

Even those who rejected his political formula acknowledged that Greater Britain was Britain’s real empire. Most Australians, New Zealanders and English-speaking Canadians and South Africans took the same view. But the empire they imagined was an empire of partners and equals, not of dependents and subjects. For many Victorians, however, it was the third kind of empire that served Britain best and returned the largest moral dividend. Its outline was sketched in Adam Smith’s hymn to free trade, The Wealth of Nations (1776). In the ‘empire of free trade’ (not a term Smith used), rule was, or should be, redundant. Free commercial relations would allow the free passage of ideas. It was easy to think that complementary economies would become complementary cultures as well, and that the world’s richest, most complex and most diversified culture would export its institutions and values alongside its manufactures.

There was nothing new in the eagerness of the landed and commercial elite to make money quickly, nor in their willingness to try every possible method: the Elizabethan aristocracy had invested in piracy, colonization and exotic new trades, as well as mining and draining for land reclamation. But until the late eighteenth century, it was widely assumed that manufacture and farming in Britain should be protected against competition from abroad. In fact, it took more than seventy years before the programme spelt out in Adam Smith’s The Wealth of Nations (1776) was implemented in full with free trade in corn (1846) and the end of the Navigation Laws (in 1851). Long before that, manufacturers had been free to impose new conditions of work, while the state outlawed ‘combination’ (i.e. trade union organization) or cleared the way for the huge railway projects that, in London at least, removed thousands of people from the path of the line.

The effect on Europeans had been almost equally bad: their feelings were corrupted and coarsened by the violence and misery they inflicted.5 Indeed, trying to rule colonies that were geographically remote as well as ethnically different was politically risky and certain to fail. These views were influential among thinkers and writers in Britain, including Hume and Edward Gibbon, whose Decline and Fall of the Roman Empire (1776) had famously warned against the danger for an empire of reaching ‘immoderate size’. In The Wealth of Nations (1776), Adam Smith had looked forward to the time when those the Europeans had been able to oppress ‘with impunity’6 would restore the balance of power. Edmund Burke’s famous polemic against the corruption and cruelty of the British presence in India reflected the same disenchanted view of European behaviour overseas and its destructive effects on other cultures and peoples. So it was not entirely surprising that when the convict colony was established at Botany Bay in 1788, Arthur Phillip, the first governor, was determined to promote friendly relations with the Aborigines and prevent his own men from using force against them.


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The Joy of Tax by Richard Murphy

banking crisis, banks create money, carried interest, correlation does not imply causation, en.wikipedia.org, failed state, full employment, Gini coefficient, high net worth, land value tax, means of production, offshore financial centre, quantitative easing, race to the bottom, savings glut, seigniorage, The Spirit Level, The Wealth of Nations by Adam Smith, transfer pricing

I first created country-by-country reporting in 2003. 15 http://www.oecd-ilibrary.org/taxation/guidance-on-transfer-pricing-documentation-and-country-by-country-reporting_9789264219236-en 16 http://www.taxresearch.org.uk/Documents/CRDivCBCR2015.pdf 17 http://uncounted.org/2015/06/15/the-politics-of-country-by-country-reporting Chapter 6: The underpinnings of a good tax system 1 Adam Smith, The Wealth of Nations, 1776, Book V, Chapter II, Part II. Extract downloaded from http://www.bibliomania.com/2/1/65/112/frameset.html 4 December 2006 2 It should be noted that these four terms are also the titles of what are called the Quaker Testimonies. I am a Quaker, but as far as I know, also the only one to ever interpret them in the way I do here. For more on the Quaker Testimonies see http://www.quaker.org.uk/testimonies 3 http://www.adamsmith.org/sites/default/files/images/stories/tax-competition.pdf 4 See, for example, http://www.adamsmith.org/research/think-pieces/save-the-tax-havens-we-need-them by the director of the Adam Smith Institute 5 The OECD is dedicated to ending it. See http://www.oecd.org/ctp/beps.htm 6 http://www.icij.org/project/luxembourg-leaks 7 http://www.financialsecrecyindex.com/PDF/SecrecyWorld.pdf 8 http://www.sussex.ac.uk/spru/people/lists/person/111262 9 http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_%28Social_State_-_Idleness.pdf.

At the core of the French uprising in 1789 was a demand for the overthrow of feudalism and the privileges and taxes that maintained it. Even if ‘Liberté, Égalité, Fraternité’ was not, in fact, the cry of that revolution, in the Age of Enlightenment it was held self-evident that taxation not only had to reflect society, but had the capacity to change society. It may not have been coincidence that Adam Smith published his theory of taxation in his book The Wealth of Nations in 1776, the year the United States of America declared independence from Britain. Another paradigm in taxation had shifted. It was becoming clear that nation states were defined by their ability to tax and that the credibility of those states was, albeit rather hesitantly at first, being determined by their willingness to tax in accordance with the views of those who were governed.

It is really an argument for plutocracy, a system of government where those ruling are granted power by virtue of their wealth. The fact that Walmsley also argues that people have not consented to tax by voting in elections might surprise many: this idea is very obviously untrue, but the argument is made time and again by those organizations. So, in 2014 Tim Worstall, an Adam Smith Institute fellow, stated that ‘democracy is not all it’s cracked up to be’2 whilst in 2012 Adam Smith Institute director Dr Eamonn Butler wrote about the ‘tyranny of the majority’3 – a term much favoured by these groups. What they mean by it is that the right that democracy on the basis of universal suffrage provides to a government to create progressive taxation is an assault by the majority on the rights of the wealthy minority. The ethos of these groups is, in fact, very clear.


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Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

So whatever the political differences established by the American Revolution, Britain, Holland, and the United States were joint leaders in economic development at the start of the nineteenth century. There was one important difference-a difference that itself provided part of the rationale for settlement. Europe increasingly suffered from too much population for its land; in America, the ratio of land to people was quite different. This had implications for the balance of economic and political power. Adam Smith, the revered founder of modern economics, published The Wealth of Nations in 1776, coincident with the American Revolution. "England," he observed, "is certainly, in the present times, a much richer country than any part of North America. The wages oflabor, however, are much higher in North America than in any part ofEngland." 10 Virginia was different. The settlers in New England, and the Hudson and Delaware valleys, were predominantly middle-class religious dissenters.

Customary economies had little capacity to deal with change and offered little encouragement to initiate change. In modern society, we make decisions and choices, and the economic system is the framework within which we make them. It contains rules for assignment, production, and exchange. In the late eighteenth and nineteenth centuries, economists established a durable method of analysis for understanding production for exchange. Adam Smith's principal work, The Wealth of Nations) described the division of labor. David Ricardo, who became a writer and member of the British Parliament after successful speculation in bonds, laid out the principle of comparative advantage fifty years later. The effectiveness of an economic system is determined by its efficiency in exploiting comparative advantage and the division oflabor. The Colombe d'Or For two hundred years, European artists have been attracted to the bright light and brilliant scenery of the south of France.

Stocks for the LongRun. New York and London: McGraw-HilL Simon, H. A. 1969. The Sciences ofthe Artificial. Cambridge, Mass.: MIT Press. Singer, H. 1950. "The Distribution of Gains between Investing and Borrowing Countries." American Economic Review 40: 473-85. Smith, A. 1759. The Theory ofMoral Sentiments. Indianapolis: Liberty Press. 1976. ---. 1976. An Enquiry into the Nature and Causes of the Wealth of Nations. Ed. R. H. Campbell and A. S. Skinner. Oxford: Oxford University Press. Smith, B. D. 1995. The Emergence of Agriculture. New York and Oxford: Scientific American Library. Sokal, A. D., and J. Bricmont. 1998. Fashionable Nonsense: Postmodern Intellectuals) Abuse ofScience. New York: Picador. Solow, R. M. 1970. Growth Theory: An Exposition. Oxford: Oxford University Press. Soros, G. 1998. The Crisis ofGlobal Capitalism: Open Society Endangered.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

With fewer restrictions on interest rates, activities of financial intermediaries grew rapidly.87 However, the influence of the concept of usury was still strong and lasting. Though fewer and fewer people continued to support a total ban on interest rates, there remained long debates, often among economists and economic philosophers in the eighteenth century, about whether interest rates should be set by a free market or be regulated with caps. In The Wealth of Nations, Adam Smith supported a cap on interest rates at around 5 percent. Smith feared that higher rates of 8 to 10 percent would mean that most of the debt would be issued to what he called “prodigals and projectors” (speculators), as few others would be willing to take on debt at such a rate. He believed that without such a cap on interest rates, the prodigals and projectors would outbid more rational economic agents, and as a result defaults and resource misallocation would be pervasive.

Ultimately, the South Sea Bubble reminded investors of exploitable information asymmetries between the body of shareholders and management, and it drove many to approach the task of allocating money with greater scrutiny and diligence. In the end, of course, the fraudulent activities of Enron and Bernie Madoff are echoes of this forerunner some three centuries earlier. Adam Smith, the oft-cited “father of modern economics,” took an entirely adversarial view of the structure of the joint-stock companies The Democratization of Investment 69 and the notion of investment management more broadly. Of course, Smith was highly influenced by the South Sea Bubble collapse, and in The Wealth of Nations he wrote, “Negligence and profusion, must always prevail, more or less, in the management of the affairs of such a [joint-stock] company.” He claimed that the fiduciaries could not possibly be fully dutiful and completely concerned about the welfare of shareholders because the money is not their own: “The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in private copartner[ship] frequently watch over their own.”10 Adam Smith seemed to apply the famous principle of self-interest to the management of investment funds and, in so doing, deemed it a poor idea.

“South Sea Bubble Short History,” Baker Library, Harvard Business School, accessed 2014, http://www.library.hbs.edu/hc/ssb/history .html; Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (New York: Free Press, 2004), 6–8. 7. “South Sea Bubble Short History.” 8. Bakan, The Corporation, 6–7. 9. Colin Arthur Cooke, Corporation, Trust and Company: An Essay in Legal History (Cambridge, MA: Harvard University Press, 1951), 83. 10. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), 334–335. 11. Peter N. Stearns, The Industrial Revolution in World History, 3rd ed. (Boulder, CO: Westview, 2007). 12. Ibid., 34–37. 2. The Democratization of Investment 345 13. Ibid., 17–26 and 79–83. 14. Meir Kohn, “Finance before the Industrial Revolution: An Introduction” (working paper 99-01, Department of Economics, Dartmouth College, Hanover, NH, February 1999), http://www.dartmouth.edu/~mkohn /Papers/99-01.pdf, 5–6. 15.


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Trust: The Social Virtue and the Creation of Prosperity by Francis Fukuyama

barriers to entry, Berlin Wall, blue-collar work, business climate, business cycle, capital controls, collective bargaining, corporate governance, corporate raider, creative destruction, deindustrialization, Deng Xiaoping, deskilling, double entry bookkeeping, equal pay for equal work, European colonialism, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global village, Gunnar Myrdal, hiring and firing, industrial robot, Jane Jacobs, job satisfaction, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, land reform, liberal capitalism, liberation theology, low skilled workers, manufacturing employment, mittelstand, price mechanism, profit maximization, RAND corporation, rent-seeking, Ronald Coase, Silicon Valley, Steve Jobs, Steve Wozniak, The Death and Life of Great American Cities, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, transfer pricing, traveling salesman, union organizing

Taylor, Bismarck: The Man and the Statesman (New York: Vintage Books, 1967), pp. 202-203. 17Braun (1990), p. 54. 18See Klaus Chmielewicz, “Codetermination,” in Handbook of German Business Management, Vol. 2 (199), pp. 412-438. 19Peter Schwerdtner, “Trade Unions in the German Economic and Social Order,” Zeitschrift für die gesamte Staatswissenschaft 135 (1979): 455-473. 20On this general point, see Allen in Lodge and Vogel, eds. (1987), pp. 79-80. 21James Fallows and others have made a great deal of the importance of Friedrich List, asserting that the latter’s National System of Political Economy has been a better guide to both German and Asian economic growth than Adam Smith’s Wealth of Nations. List, however, simply repeats many of the mercantilist dicta about the centrality of national power and the subordination of economic means to strategic ends that was the staple of mercantilists from earlier centuries like Colbert or Turgot. Adam Smith would have found nothing in List’s arguments that he would have considered a decisive critique; indeed, The Wealth of Nations was itself written as a critique of List’s mercantilist predecessors. Fallows, moreover, vastly overstates the importance of List to German economic thought and practice. See Fallows, Looking at the Sun: The Rise of the New East Asian Economic and Political System (New York: Pantheon Books, 1994), pp. 189-190. 22Tomas Riha, “German Political Economy: History of Alternative Economics,” International Journal of Social Economics 12 (1985): 192-209. 23Allen in Lodge and Vogel, eds. (1987), pp. 176-177. 24On the establishment of the Technische Hochschule, see Peter Mathias and M.

Two of the most prolific and renowned contemporary neoclassical economists, Gary Becker of the University of Chicago and James Buchanan of George Mason University (both of whom won Nobel Prizes for their work), have built careers extending economic methodology to what are usually regarded as noneconomic phenomena like politics, bureaucracy, racism, the family, and fertility.7 The political science departments of many major universities are now filled with followers of socalled rational choice theory, which attempts to explain politics using an essentially economic methodology.8 The problem with neoclassical economics is that it has forgotten certain key foundations on which classical economics was based. Adam Smith, the premier classical economist, believed that people are driven by a selfish desire to “better their condition,” but he would never have subscribed to the notion that economic activity could be reduced to rational utility maximization. Indeed, his other major work besides The Wealth of Nations was The Theory of Moral Sentiments, which portrays economic motivation as highly complex and embedded in broader social habits and mores. The very change in the name of the discipline from “political economy” to “economics” between the eighteenth and late nineteenth centuries reflects the narrowing of the model of human behavior at its core.

.: Inter-University Study of Human Resources, 1975); and Clark Kerr, The Future of Industrial Societies: Convergence or Diversity? (Cambridge: Cambridge University Press, 1983). 22Adam Smith’s description of the progressive division of labor in the pin factory into tasks of smaller and simpler scope at the beginning of The Wealth of Nations is actually the locus classicus for this line of criticism of modern industrial society. See An Enquiry in the Nature and Causes of the Wealth of Nations (Indianapolis: Liberty Classics, 1981), pp. 14-15. 23On the Judeo-Christian tradition, see the chapter by Jaroslav Pelikan in Jaroslav J. Pelikan et al, Comparative Work Ethics: Christian, Buddhist, Islamic (Washington, D.C: Library of Congress, 1985). See also Michael Novak, “Camels and Needles, Talents and Treasure: American Catholicism and the Capitalist Ethic,” in Peter L.


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Getting Better: Why Global Development Is Succeeding--And How We Can Improve the World Even More by Charles Kenny

"Robert Solow", agricultural Revolution, Berlin Wall, British Empire, Charles Lindbergh, clean water, demographic transition, double entry bookkeeping, experimental subject, Fall of the Berlin Wall, germ theory of disease, Gunnar Myrdal, income inequality, income per capita, Indoor air pollution, inventory management, Kickstarter, Milgram experiment, off grid, open borders, purchasing power parity, randomized controlled trial, structural adjustment programs, The Wealth of Nations by Adam Smith, total factor productivity, Toyota Production System, trade liberalization, transaction costs, very high income, Washington Consensus, X Prize

This suggests there may be value in further analysis of such “sticky technologies.” INSTITUTIONS: STICKY TECHNOLOGIES We have seen that “technology” as defined by economists is a very broad concept, covering all sorts of innovation. It covers traditional or invented technologies—Watt’s steam train, Engelbart’s computer mouse—to be sure. But it also covers anything else that can raise the productivity of labor or capital. Think of Adam Smith’s pin factory, highlighted in the Wealth of Nations. The specialized machinery of the factory (technology “embodied” in physical capital) and the skills required to use it (human capital) were both vital, but what allowed for this specialization was the division of labor, according to Smith. “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top.” In such a system, Smith estimated that each small manufactory could make upward of forty-eight hundred pins per person, where one unskilled worker alone could make a single pin a day.

Income is, in the end, nothing more than a measure of achievement in—and a tool to achieve—a better quality of life. Chapter 6 further discusses the power of income as a measure and a tool in those terms. The great news for global development is that quality of life is (increasingly) cheap. SIX THE GREAT NEWS The Best Things in Life Are Cheap The idea that ever-growing wealth is central to the good life has long been controversial. In The Wealth of Nations, Adam Smith argued that escaping poverty only required that people are “tolerably well fed, clothed and lodged.” Because of the limited needs of mankind, he felt that the primary purpose of the pursuit of riches in wealthier countries is “regard to the sentiment of mankind . . . to be observed, to be attended to, to be taken notice of.”1 Smith was writing in the late eighteenth century, when GDP per capita in the United Kingdom was somewhere below $1,700.

“The Trouble with the MDGs: Confronting Expectations of Aid and Development Success.” World Development 35, no. 5. Cole, C., et al. 2003. “The Educational Impact of Rechov Sumsum/Shara’a Simsim.” International Journal of Behavioural Development 27, pp. 409–422. Collier, P. 2007. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. Oxford: Oxford University Press. Comin, D., W. Easterly, and E. Gong. 2006. “Was the Wealth of Nations Determined in 1000 BC?” NBER Working Paper 12657. Conley, D., G. McCord, and J. Sachs. 2007. “Africa’s Lagging Demographic Transition: Evidence from Exogenous Impacts of Malaria Ecology and Agricultural Technology.” NBER Working Paper 12892. Cooper, R. 2005. “A Half-Century of Development.” CID Harvard Working Paper 118. Coviello, D., and R. Islam. 2006. “Does Aid Help Improve Economic Institutions?”


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Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy by Iain Martin

asset-backed security, bank run, Basel III, beat the dealer, Big bang: deregulation of the City of London, call centre, central bank independence, computer age, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, deindustrialization, deskilling, Edward Thorp, Etonian, Eugene Fama: efficient market hypothesis, eurozone crisis, falling living standards, financial deregulation, financial innovation, G4S, high net worth, interest rate swap, invisible hand, joint-stock company, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, negative equity, Neil Kinnock, Nick Leeson, North Sea oil, Northern Rock, old-boy network, pets.com, Red Clydeside, shareholder value, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, value at risk

This intellectual explosion was fuelled by Scots having unusually good access to basic education, thanks to the innovation of schools introduced by the ‘kirk’, or church, meaning abnormally high literacy rates for the time. Upwards of 70 per cent of Scots were able to read and write by the mid-eighteenth century. At a time when England had only two such institutions, Oxford and Cambridge, Scotland had four ancient universities in the shape of St Andrews, Aberdeen, Edinburgh and Glasgow. From the latter intellectual hothouse came Adam Smith, the great classical liberal author of The Wealth of Nations (1776). Smith taught at Glasgow, gave popular public lectures in Edinburgh and became the father of modern economics. The ideas of philosophers including David Hume and Adam Ferguson, and scientists such as Joseph Black, helped shape our world. Even the modern insurance industry can be traced to Edinburgh and the establishment in the 1740s of the ‘Fund for a Provision for the Widows and Children of the Ministers of the Church of Scotland’, which created the model, with the use of actuarial tables, whereby a mutual insurance company could ensure that it had sufficient funds to insure against early death.8 It was in this innovative climate that the Royal Bank and the old Bank of Scotland pioneered what became modern British banking.

Established just three years previously, with the aristocracy of Ayrshire and surrounding counties heavily invested, the Ayr Bank had expanded too fast, made too many loans and became overextended. To fill the gap it started borrowing ever-larger amounts from elsewhere. Then came disaster, with the sudden collapse of the London-Scottish banking house of Neale, James, Fordyce and Downe, with which the Ayr Bank had done business.10 Adam Smith, writing in The Wealth of Nations, several years later, described the Ayr Bank’s reckless approach to running its affairs in the following terms: ‘The project of replenishing their coffers in this manner may be compared to that of a man who had a water-pond from which a stream was continually running out, but who proposed to keep it always full by employing a number of people to go continually with buckets to a well at some miles distance in order to bring water to replenish it.’

He still despised Tory policies but nationalisation and the command of the economy traditionally advocated by the left didn’t seem like a suitable response to the needs of an era that was going to be increasingly global. It also didn’t seem like a good way of getting a Labour government elected for the first time since 1979, given that it needed to win in the south and Midlands of England. Brown’s views started to evolve. Adam Smith, the eighteenth-century philosopher and father of modern economics, the inspiration for pro-market economists and free-market Thatcherites, was a fellow son of Kirkcaldy.3 There was a side to Smith that appealed to Brown all along. As well as teaching that markets were essential for economic efficiency, hadn’t Smith also appeared to argue in The Wealth of Nations that the rich should pay higher taxes to support the poor? As Brown’s views shifted away from old-style socialism there were areas he was determined to protect from markets; the National Health Service was the obvioius example.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, Bernie Madoff, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, minimum wage unemployment, moral hazard, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, shareholder value, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

But demand is nothing other than marginal benefit, and supply is nothing other than marginal cost. So, competitive markets guarantee that the right quantities are produced and society’s net benefit is maximized. This is the technical argument for laissez-faire, the view that governments should leave the economy alone. But textbooks seek to persuade. So, most textbooks selectively paraphrase the argument developed by Adam Smith in The Wealth of Nations, published in 1776. In an analogy that has become iconic, Smith compares competitive market forces to an invisible hand that guides self-interest into socially useful activities. In a famous passage he says: ‘It is not through the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest.’ The novel twist in Smith’s argument is that he turns selfishness into a virtue.

Questions about moral values lie outside the scope of economics. Economics cannot say how much fairness (or equity) there ought to be. Such moral questions are ultimately resolved by political decisions. All economists can do is give advice on how to achieve society’s goals as efficiently as possible. The science of economics is value free. 14 2.1 The inherent tension with macroeconomics As we mentioned the first seminal book in economics, Adam Smith’s The Wealth of Nations, it behoves us to mention another, John Maynard Keynes’s The General Theory of Employment, Interest and Money. Published in 1936 during the Great Depression, it attempted to explain how unemployment could persist, and what ameliorating actions governments could take. In the process of ­doing this, Keynes became the founding father of macroeconomics. This is the study of large aggregates, and explains such things as unemployment, inflation, exchange rates and interest rates; whereas microeconomics deals with smaller chunks of reality, such as individual markets.2 Keynes’s message is the opposite of Smith’s.

Vishny (1997) ‘The limits of arbitrage’, Journal of Finance, 52(1): 35–55. Simon, H. (1991) ‘Organisations and markets’, Journal of Economic Perspectives, 5(2): 25–44. Singer, N. and D. Wilson (2009) ‘Medical editors push for ghostwriting crackdown’, New York Times, 17 September. Singer, P. and J. Mason (2006) The Ethics of What We Eat: Why our food choices matter, Emmaus, PA: Rodale. Smith, A. (1979 [1776]) The Nature and Causes of the Wealth of Nations, Indianapolis: Liberty Press. Solnick, S. J. and D. Hemenway (1998) ‘Is 287 Bibliography K. Rothschild (ed.), Power in Economics: Selected readings, London: Penguin, pp. 7–17. Ruffin, R. and P. Gregory (2001) Principles of Microeconomics, 7th edn, Toronto: Addison Wesley. Russell, T. and R. Thaler (1985) ‘The relevance of quasi rationality in competitive markets’, American Economic Review, 75(5): 1071–82.


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The Reckoning: Financial Accountability and the Rise and Fall of Nations by Jacob Soll

accounting loophole / creative accounting, bank run, Bonfire of the Vanities, British Empire, collapse of Lehman Brothers, computer age, corporate governance, creative destruction, Credit Default Swap, delayed gratification, demand response, discounted cash flows, double entry bookkeeping, financial independence, Frederick Winslow Taylor, God and Mammon, High speed trading, Honoré de Balzac, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, new economy, New Urbanism, Nick Leeson, Ponzi scheme, Ralph Waldo Emerson, Scientific racism, South Sea Bubble, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

By 1727, Walpole had managed to lower interest payments by 1 percent, almost £377,381, nearly the size of the entire military budget. He began putting surpluses of sometimes more than £1 million per annum into the sinking fund, which went to service the debt and lower the debt principal. This brought confidence to the markets and led to a general feeling that the debt was under control. By the time he left office in 1742, Walpole had lowered the debt by £13 million.27 In The Wealth of Nations (1776)—the defining work of morality and free-market economics—Adam Smith expressed doubt that a sinking fund was a solution to debt. Instead, he considered it a temptation to ignore debt and, indeed, to contract new debts. Smith was thinking of Walpole. Although Walpole was a man of finance who governed during the Enlightenment, he was a politician first, and as political pressure regarding the debt lightened, the sinking fund looked less and less like a debt-servicing instrument and more like a political slush fund.

Poem quotation from Robert Colinson, Idea rationaria, or the Perfect Accomptant (Edinburgh: David Lindsay, 1683), in B. S. Yamey, “Scientific Bookkeeping and the Rise of Capitalism,” Economic History Review 1, no. 2–3 (1949): 102; Lodewijk J. Wagenaar, “Les mécanismes de la prospérité,” in Amsterdam XVIIe siècle. Marchands et philosophes: les bénéfices de la tolerance, ed. Henri Méchoulan (Paris: Editions Autrement, 1993), 59–81; Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Amherst, NY: Prometheus Books, 1991), 4: chap. 3, part 1; Jan de Vries and Ad van der Woude, The First Modern Economy: Success, Failure, and Perseverance of the Dutch Economy, 1500–1815 (Cambridge: Cambridge University Press, 1997), 129–131. 7. Caspar Barlaeus, Marie de Medicis entrant dans l’Amsterdam; ou Histoire de la reception faicte à la Reyne Mère du Roy très-Chrestien, par les Bourgmaistres et Bourgeoisie de la Ville d’Amsterdam (Amsterdam: Jean & Corneille Blaeu, 1638), 57; Simon Schama, The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age, 2nd ed.

The Political Economy of Virtue: Luxury, Patriotism, and the Origins of the French Revolution. Ithaca, NY: Cornell University Press, 2006. Skinner, Quentin. The Foundations of Modern Political Thought. 2 vols. Cambridge: Cambridge University Press, 1978. Smallwood, Stephanie E. Saltwater Slavery: A Middle Passage from Africa to American Diaspora. Cambridge, MA: Harvard University Press, 2008. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Amherst, NY: Prometheus Books, 1991. Smith, Woodruff D. “The Function of Commercial Centers in the Modernization of European Capitalism: Amsterdam as an Information Exchange in the Seventeenth Century.” Journal of Economic History 44, no. 4 (1984): 985–1005. Smyth, Adam. Autobiography in Early Modern Britain. Cambridge: Cambridge University Press, 2010. Snell, Charles. Accompts for landed-men: or; a plain and easie form which they may observe, in keeping accompts of their estates.


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This Could Be Our Future: A Manifesto for a More Generous World by Yancey Strickler

basic income, big-box store, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cognitive dissonance, corporate governance, Daniel Kahneman / Amos Tversky, David Graeber, Donald Trump, Doomsday Clock, effective altruism, Elon Musk, financial independence, gender pay gap, global supply chain, housing crisis, Ignaz Semmelweis: hand washing, invention of the printing press, invisible hand, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Nash: game theory, Joi Ito, Joseph Schumpeter, Kickstarter, Louis Pasteur, Mark Zuckerberg, medical bankruptcy, new economy, Oculus Rift, off grid, offshore financial centre, Ralph Nader, RAND corporation, Richard Thaler, Ronald Reagan, self-driving car, shareholder value, Silicon Valley, Simon Kuznets, Snapchat, Social Responsibility of Business Is to Increase Its Profits, stem cell, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Travis Kalanick, universal basic income, white flight

It means viewing our society as a portfolio to buy, sell, and trade. It’s like seeing the world through the eyes of a sociopathic oligarch. Everything has a price. A RATIONAL ORIGIN It all started innocently enough. In 1776, the Scottish economist and philosopher Adam Smith argued that society best functions when people are trusted to act according to their self-interest. “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,” he famously wrote in The Wealth of Nations. You didn’t have to force or beg a butcher to be a butcher. Because this was what enabled people to survive and meet the needs of their family, it’s what they would do on their own. This was an empowering idea. A society built on trusting people to look out for themselves was possible—and preferable.

Aided by technology and measurement, the body came to be understood as a system of distinct parts. Everything was connected but not everything worked the same way. Each part of the body had its own path to health. It wasn’t one treatment fits all. Now we know there are types and stages of cancer, good and bad cholesterols, good and bad fats, and more nuance every day. (Specificity is the same force that Adam Smith declares crucial to unlocking economic growth in The Wealth of Nations.) Because of the forces of technology, measurement, and specificity, our understanding of health became deeper. Medicine became real. We live longer and better lives as a result. The same thing can happen again. Financial maximization is to value what bloodletting was to medicine: the most advanced answer of its time, but not the final answer. Value-wise, we’re still in the Dark Ages.

The idea of a person as an individual with rights was like the self-driving car of 2016: cool in theory, but far from an everyday reality. The idea that the rich would willfully share power was unthinkable. You had to petition the House of Lords to start a company. Children were expected to work long hours of hard labor. Then new ideas developed and spread for how the world could work. The French Revolution, the Declaration of Independence, Adam Smith, Karl Marx, the Beatles, hip-hop, and Star Trek: The Next Generation in the blink of an eye. It was a very different world and it wasn’t that long ago. Where should the 2050 generations lead us? I believe that expanding our definition of value is the goal to work toward. There is unlimited potential to increase the amount of fairness, mastery, purpose, community, knowledge, family, faith, tradition, and sustainability in our world if we accept a broader idea of value.


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Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas

"Robert Solow", Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, computer age, conceptual framework, corporate governance, credit crunch, Credit Default Swap, David Graeber, David Ricardo: comparative advantage, disintermediation, diversified portfolio, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, financial deregulation, financial independence, financial innovation, financial intermediation, financial repression, Flash crash, full employment, global value chain, global village, High speed trading, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, job satisfaction, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, London Interbank Offered Rate, low skilled workers, M-Pesa, market bubble, means of production, money market fund, moral hazard, mortgage debt, Network effects, new economy, oil shock, open economy, pensions crisis, price stability, Productivity paradox, profit maximization, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, savings glut, Scramble for Africa, secular stagnation, shareholder value, Simon Kuznets, special drawing rights, Thales of Miletus, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, total factor productivity, trade liberalization, transaction costs, union organizing, value at risk, Washington Consensus, zero-sum game

Marx offered a distinctive answer to this question, the significance of which can be fully appreciated only in the context of other monetary theories.15 It is notable, for instance, that classical political economy offers little guidance on this issue. Classical economists were certainly concerned with the peculiarity of money, but approached the issue instrumentally, so to speak. The standard view was put forth by Adam Smith in The Wealth of Nations while analysing ‘primitive’ exchange.16 In short, if money was absent, direct commodity exchange would prevail; however, direct exchange would be prone to constant breakdowns since the commodities held by traders would frequently be incompatible in terms of quantities, quality, time of exchange, and so on. Hence, a ‘prudent’ trader would have to keep a commodity desired by all to facilitate exchange.

Advanced capitalism is indeed based on money that comprises promises to pay, but only a leap of logic would equate gold with a promise to pay – that is, with a debt.28 Fourth, and more generally, credit-based theories of money offer a slender foundation for explaining the collapse of financial relations and the corresponding rise of monetary relations that is characteristic of capitalist crises. It is instructive to note, incidentally, that some aspects of the chartalist view go back to classical political economy. Sir James Steuart proposed a well-developed version of abstract value measurement shortly before Adam Smith wrote The Wealth of Nations. In his Inquiry into the Principles of Political Economy, Steuart suggested that ‘money of account’ is an abstract numeraire that establishes ideal prices, which are then approximated in practice by ‘material money’.29 Marx, despite the high regard in which he held Steuart’s monetary analysis, rejected this view and offered fresh insight into money originating in commodity exchange.30 The gist of Marx’s objection to Steuart’s theory of the abstract numeraire was that it obfuscates the relationship between ideal prices (established abstractly by money on paper, or in the mind) and actual prices (established in practice by money through regular commodity exchanges).

Arthur, for whom Hegel-type dialectics entirely replace monetary theory and economics (‘Money and Exchange’, Capital and Class 30:3, 2006); for a telling response see Thomas Sekine, ‘Arthur on Money and Exchange’, Capital and Class 33:3, 2009. 15 Discussion in this section draws heavily on Costas Lapavitsas, Social Foundations of Markets, Money and Credit, London: Routledge, 2003, ch. 3. 16 Adam Smith, The Wealth of Nations, ed. Edwin Cannan E, London: Methuen, 1904, vol. 1, ch. 5. 17 This point is often missed by anthropologists, sociologists and other social scientists who discuss the origin of money and criticize ‘economic theory’ for relating money to direct exchange. Thus, David Graeber makes a typically withering attack on Smith for assuming a ‘primitive’ society and an imaginary state of barter out of which money presumably emerges (Debt: The First 5000 Years, New York: Melville House, 2011, ch. 2).


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The Future of the Professions: How Technology Will Transform the Work of Human Experts by Richard Susskind, Daniel Susskind

23andMe, 3D printing, additive manufacturing, AI winter, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, Andrew Keen, Atul Gawande, Automated Insights, autonomous vehicles, Big bang: deregulation of the City of London, big data - Walmart - Pop Tarts, Bill Joy: nanobots, business process, business process outsourcing, Cass Sunstein, Checklist Manifesto, Clapham omnibus, Clayton Christensen, clean water, cloud computing, commoditize, computer age, Computer Numeric Control, computer vision, conceptual framework, corporate governance, creative destruction, crowdsourcing, Daniel Kahneman / Amos Tversky, death of newspapers, disintermediation, Douglas Hofstadter, en.wikipedia.org, Erik Brynjolfsson, Filter Bubble, full employment, future of work, Google Glasses, Google X / Alphabet X, Hacker Ethic, industrial robot, informal economy, information retrieval, interchangeable parts, Internet of things, Isaac Newton, James Hargreaves, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, knowledge economy, lifelogging, lump of labour, Marshall McLuhan, Metcalfe’s law, Narrative Science, natural language processing, Network effects, optical character recognition, Paul Samuelson, personalized medicine, pre–internet, Ray Kurzweil, Richard Feynman, Second Machine Age, self-driving car, semantic web, Shoshana Zuboff, Skype, social web, speech recognition, spinning jenny, strong AI, supply-chain management, telepresence, The Future of Employment, the market place, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, transaction costs, Turing test, Watson beat the top human players on Jeopardy!, WikiLeaks, young professional

Antonio Regalado, ‘What It Will Take for Computers to Be Conscious’, MIT Technology Review, 2 Oct. 2014 <http://www.technologyreview.com> (accessed 30 March 2015). 17 Jerome Groopman, How Doctors Think (2008), 17. 18 Simon Baron-Cohen, The Essential Difference: Male and Female Brains and the Truth About Autism (2004). 19 Joseph Weizenbaum, Computer Power and Human Reason: From Judgment to Calculation (1984). 20 The Panel on Fair Access to the Professions, Unleashing Aspiration: The Final Report of the Panel on Fair Access to the Professions (2009). <http://webarchive.nationalarchives.gov.uk/+/http:/www.cabinetoffice.gov.uk/media/227102/fair-access.pdf> (accessed 23 March 2015). 21 Adam Smith, An Inquiry into the Nature and Cause of the Wealth of Nations (1998). 22 Smith, The Wealth of Nations, 12–15. 23 Smith, The Wealth of Nations, 429. 24 Smith, The Wealth of Nations, 430. 25 ‘He is at home when he is not working and when he is working he is not at home’: ‘Economic and Philosophical Manuscripts’, in Karl Marx: Selected Writings, ed. Lawrence Simon (1994), 62. 26 Marx, ‘Economic and Philosophical Manuscripts’, passim. 27 Max Weber, The Protestant Ethic and the Spirit of Capitalism (2011), 99. 28 Isaac Asimov, Robot Visions (1990), 341. 29 ‘Le mieux est l’ennemi du bien’ (‘the best is the enemy of the good’), in Voltaire, ‘La Bégueule’ (1772) <http://fr.wikisource.org/wiki/La_Bégueule> (accessed 23 March 2015). 7 After the Professions When we started working on this book in 2010, our principal focus was on what the future might hold for the professions.

Karl Marx, for example, is known for his writings on the misery that technology could bring. Even Adam Smith, the political economist and philosopher who is held out as the standard-bearer for unfettered markets and innovation, recognized the downside, eighty years before Marx. Today, of course, the conditions in the professions are very different from those in the factories and mills that occupied the thoughts of these classical theorists. Workers in industrial Britain in the eighteenth and nineteenth centuries were systematically exploited and oppressed, and had little legal protection. To draw a direct comparison between their plight and the prospects for our professions would be to overstate the case. Yet we can still learn, albeit indirectly, from the insights of Smith and Marx. In 1776, Adam Smith published The Wealth of Nations.21 He was trying to understand what made some countries rich and others poor.

James Gilmore and Joseph Pine (2000), 134. 15 See e.g. Langdon Winner, who writes: ‘the basic conceit is always the same: new technology will bring universal wealth, enhanced freedom, revitalized politics, satisfying community, and personal fulfillment.’ Langdon Winner, ‘Technology Tod