HONORS ECONOMICS
MAMMON & MORALITY
ECONOMICS’ TWO GREAT INSIGHTS
WHOLE
≠ SUM
OF THE PARTS
VIRTUE
≠ HAPPINESS

><⊗
“Smart
for
one,
dumb
for
all”
“No such thing as a free lunch”
or
Economic
problem
= UNLIMITED
desires &
“Dumb
for one,
smart for all”
LIMITED resources
 EXTERNALITIES & Public Goods
Ex. LoJack v. The Club
 Necessity of Choices & Tradeoffs
Pervasive
Market
& Gov’t Failure
A.K.A. “The
Microeconomic
Principle”
A.K.A. “The
“The Macroeconomic
Principle”
Conservative Principle”
“The Progressive Principle”
POLITICO-ECONOMIC SYSTEMS
EQUILIBRIUM
EFFICIENCY
POWER
POWER-EFFICIENCY
GLUT
EQUILIBRIUM
John Maynard Keynes
David Ricardo
Thomas Malthus
J.B. Say
Karl Marx
Friedrich Von Hayek
Joseph Schumpeter
Austrian Economics
Thorstein Veblen
Libertarians
RELIGION & PHILOSOPHY
Ancient
PrimitivePhilosophy:
Religion: (Plato & Aristotle)
 VIRTUE
HAPPINESS &=HAPPINESS
= VIRTUE
Good= Behavior
Good Harvest


ONLY DOING GOOD CAN MAKE YOU TRULY HAPPY
WEALTH = Rain-dance
REWARD FOR GOOD BEHAVIOR
Sacrifices
(“scapegoats”)
 PUBLIC GOOD Animal
=
PRIVATE
GOOD
Story of Jonah


HUMANS = SOCIAL
TabooANIMALS ( ZOON POLITIKON )
GOOD GOVERNMENT  GOOD CITIZENS (RES PUBLICA)
Examples ofpossible
Principle
1:
only as first it resides in the hearts
Modern Philosophy:“Justice in the life and conduct of the State is
Karma
 MACHIAVELLI: “THE
ENDand
JUSTIFIES
THE
MEANS”
souls of the
citizens.”
 VIRTUE (MEANS)
≠ HAPPINESS
(ENDS)
Mandate
of Heaven
Plato
Punishment
forTHE
SinsBEES”
 MANDEVILLE: “THE
FABLE OF
“Ant
the
Grasshopper”
“Happiness
the meaning
and the purpose of
 PRIVATE VICE
&
PUBLIC
VIRTUE is
(GREED
IS GOOD)
life, the
whole aim and end of human
The “Golden
Rule”
 SOCIAL CONTRACT
THEORIES:

existence.”
INTERESTS OF RULERS ≠ INTERESTS OF RULED
Good Behavior (VIRTUE)
will be rewarded (HAPPINESS)
Aristotle
THE STORY OF JOB
DESERVE’S GOT
NOTHING TO DOT
WITH IT
Job must have done
really wrong to deserve
this.
With friends like these. . .
Who needs enemies
Think Job, you must
have done something
wrong. Bad things can’t
happen to good people.
ADAM SMITH’S GREAT IDEA
In 1776, ADAM SMITH
wrote
FREE LABOR
THE
DIVISION
“INVISIBLE
OF
LABOR
HAND”
WEALTH
NATIONS
“LABOR THEORYTHE
OF VALUE”
– TheOF
value
of a good or service
=&labor
required
to produce
itguided by
People pursue their
rational
SELF-INTEREST
the
SPECIALIZATION
dividing
production
into &
individual
tasks
PRICE SYSTEM’swould
“Invisible
Hand”
serve the public interest
increase
productivity
Labor,
the source
of economic value,&=established
“free” to be guided
= attacked
MERCANTILISM
the by
the “invisible hand”
to land
or bond.
intellectual
basis& not
forbound
modern
CAPITALISM
It is not from the benevolence of the butcher, the brewer, or the baker, that
The
real price
every but
thing,
what
every
thing
to the man
who
we
expect
ourof
dinner,
from
their
regard
toreally
their costs
own interest
. . . they
Three
The Ideas:
greatest improvement in the productive powers of labor,
wants
acquire
is the
toiland
andthey
trouble
of this,
acquiring
Whatother
everycases,
thing
intend to
only
their it,
own
gain,
are in
as init.
many
and the greater part of the skill, dexterity, and judgment with
is
worth
to thehand
man to
who
has acquired
and who
to dispose
ledreally
by an
invisible
promote
an endit,which
waswants
no part
of their
which it is any where directed, or applied, seem to have been
of
it or
exchange
for
something
else,
is the
toil and
can
intention.
Nor
is ititalways
the worse
for the
society
that
it
was which
no partitof
it.
Division
of division
Labor
(Industrial
Model
oftrouble
Production)
the effects
of the
of
labor.
save
to himself,
and
which
it can
impose
upon other
people.
By pursuing
their
own
interest
they
frequently
promote
that of the society
more effectually than when they really intend to promote it.
 The “Invisible Hand” (MarketADAM
SystemSMITH
of Distribution)
ADAM SMITH
ADAM SMITH
 Labor Theory of Value (Legal Property Rights)
VIRTUE AS VICE
RICARDO
PROTECTIONISM
 SUCH
MONOPOLY
 HIGHER
CLASSICAL=ECONOMICS
= “NO
THING AS
A FREE
PRICES
LUNCH”FOR CONSUMERS
GOVERNMENT INTERVENTION DISTORTS MARKETS
SUPPORT LAISSEZ-FAIRE POLICIES
MALTHUS
= FEEDING
THE POOR
 MORALTO
HAZARD
NATIONS SHOULD
PRODUCE
ACCORDING
THEIR 
FAMINE & ENVIRONMENTAL DEGRADATION
COMPARATIVE ADVANTAGE
UNLIMITED WANTS / LIMITED RESOURCES
MARX STRIKES BACK
MARX: CLASSICAL ECONOMICS = “STARK UTOPIA”
MARX: HISTORY = CLASS CONFLICT OVER THE MEANS OF
PRODUCTION
KARL MARX
ADAM SMITH
DIVISION OF LABOR 
“THE INVISBLE HAND” 
FREE LABOR 
ALIENATION –


WORK = NOT MEANINGFUL
COGS IN A MACHINE
EXPLOITATION –
 CONFLICT, NOT HARMONY
 CAPITAL EXTRACTS LABOR’S
“SURPLUS VALUE”
 EXCHANGE vs. USE VALUE
WAGE SLAVERY –
 LIVE  WORK  WORK  LIVE
 CAPITALISM = INHUMANE
RELIGION & MORAL ECONOMY
Something funny happened on the way to the Rapture . . .
Most religions preach COMMUNISM
– Moral–Economy
– in&theory
if not –in(Weber
practice Thesis)
CALVINISM
Puritans
Pilgrims
wealth
revealed
divine PREDESTINATION
– Restrictions
on usury
()
– Year of jubilee
()
–
Zakat population
/ noblesse oblige
()
Literate
 DIVISION OF LABOR
– Fair price
Bible churches required literacy among the laity
– Indifference to material wealth
–
Merchants
= low
social
status
()
Work
is to pray;
pray
is to
work  Capitalist
WORK ETHIC
(Work as Vocation)
“It is easier for a camel to pass through the eye of a needle, than for a rich
est Orare”
man to enter “Laborare
into the kingdom
of heaven.”
“Blessed are the poor, theirs is the Kingdom of God.”
Invest rather than spend wealth  CAPITAL ACCUMULATION
Make
but notup
spend
 Savings
& off
Investment
“Hearken to this,
youmoney,
who swallow
the needy
and cut
the poor of
the land. You who purchase the poor with money and the needy in
order toRational
inherit them
and the refuse
the grain
we willWork
sell. The
Lord
CALCULATION:
IdleofHands
 Devil’s
 Time
swore . . . Iiswill
never forget any of their deeds. Shall not the land
Money
quake and its inhabitants be destroyed? Yea, it shall rise up wholly
like the rain Protestants
cloud and it shall
sink link the river of Egypt.”
= Invention of the mechanical clock
On the
8th
Clock Towers replace Bell Towers and Minarets*
day, God did not create capitalism . . .
LAISSEZ-FAIRE & 19th CENTURY POLITICS
GERMAN
AMERICAN
TRADE
“ROBBER
UNIONS
BARONS”
KEPT
HIGHER
CREATED
MONOPOLIES
& GRAIN
WELFARE
OVER
 LOWER
OIL &
ENGLISH
LANDOWNERS
(NOBLES)
OUT WAGES
IMPORTED
 STEEL,
HIGH
FOOD
LAISSEZ-FAIRE
≈
SOCIAL
DARWINISM
RETURN
ON
INVESTMENT
& LOWER
LAND
RENTS WAGE
COSTS
TRANSPORTATION
FOR URBAN
WORKERS
 LOW
AGRICULTURAL
HIGH LABOR
COSTS
PRICES
FOR
& INDUSTRIAL
CAPITALISTS
(LAND
&OF
CAPITAL
LABOR)
 SURVIVAL
THE
FITTEST
(CAPITAL
(LABOR
&
&LAND
LABOR
vs.vs.
vs.
CAPITAL)
LAND)
 MARKET = NATURAL SELECTION
 COMPETITION = NATURAL
LAISSEZ-FAIRE = PROGRESSIVE REFORMERS
Junkers
English = LIBERALS
LAISSEZ-FAIRE LINKED TO VICTORIAN MORALITY
Nobility
Populist
Coalition
NY Finance
&
Robber Barons
Chartists
Ruhr
Manchester
Industrialists
Industrialists
KEYNESIAN REVOLUTIONS
VICTORIANS: ECONOMIC DOWNTURNS = “COLD DOUCHES” THAT
“PURGED THE ROTTENESS” AFTER THE “IRRATIONAL
EXUBERANCE” & GREED OF THE BOOM YEARS
NO PAIN, NO GAIN
The “Pain Caucus” (Remember Job?)
Along comes the Great Depression . . .
KEYNES rejected Victorian morality: PUNISHMENT did not
imply a SIN or a sinner
“Balance sheet” thinking  reducing spending when incomes
shrink  PARADOX OF THRIFT
Governments should SPEND MORE – not less – when incomes
& revenues decrease
MARX WAS RIGHT (SORT OF)
PUBLIC
SECTORMARX
SPENDING
= INCREASED IN ALL DEVELOPED COUNTRIES IN
CRITICS:
= DISCREDITED
THE 20TH CENTURY  30% TO 60% OF GDP
PREDICTED “INEVITABLE” SOCIALIST REVOLUTION
FAILURE OF “MARXIST-LENINIST” REGIMES IN RUSSIA
& EASTERN EUROPE
LIBERALIZATION OF STATIST IMPORT-SUBSTITUTION
ECONOMIES IN INDIA & LATIN AMERICA
MARX: CAPITALISM  HIGHER UNCERTAINTY & INSTABILITY 
SOCIALIZATION OF RISK & REWARD
SOCIALIZED EDUCATION (PUBLIC EDUCATION)
SOCIALIZED HEALTH INSURANCE
SOCIALIZED RETIREMENT (SOCIAL SECURITY & 401(k))
SOCIALIZED BANKING (FEDERAL RESERVE & FDIC)
MARX CORRECTLY IDENTIFIED THE IMPACT OF GLOBALIZATION,
MATERIALISM (“FETISH” COMMODITIES), & GROWTH OF EXECUTIVE
POWER / BUREAUCRACY
POLITICO-ECONOMIC SYSTEMS
STATE – MARKET
RATIONAL
IDEOLOGICAL
MEANS – ENDS
MARKET
PLAN
LIBERAL MARKET
ECONOMIES
COORDINATED
MARKET ECONOMIES
(USA, CANADA + UK)
(EUROPE + JAPAN)
LAISSEZ-FAIRE
(DICKENSIAN
ENGLAND /
GILDED AGE USA)
STATE SOCIALISM
(USSR + EASTERN
EUROPE)