Chapter 22: Economics – Liberalism
Liberalism – originated with Adam Smith in the 18 century.
Smith recommended that less government intervention would be beneficial.
Fewer, lower tariffs is better off.
Free trade is best and only way for a nation to develop.
Franklin and Jefferson thought it would be better if we didn’t have so much
This unfettered liberal capitalism results in a concentration of wealth at the top and
doesn’t distribute wealth equally.
This liberal capitalism has a tendency to produce bubbles (people investing in things they
believe will be profitable).
Belief, perception, faith
Bubbles defy demand.
There was a telegraph bubble in 1840s when telegraph was new technology. Western
union was at the head of this. The bubble popped and many companies in it were
shutdown. WU prevailed.
Railroad bubble. Bubble popped in 1894
Early 90s, consolidation bubble.
Private equity company, CCC, gathered $ from people promising a higher return on
income. They came to consolidation firm to invest in these businesses. CCC would go
around trying to buy these different businesses. Once they owned many businesses, they
went public on the market. They sold stock, investors bought stock, they became more
profitable. They were consolidating many heating and air companies. This consolidation
bubble eventually popped.
The railroad bubble allowed many companies to become recognized nationally. Also,
Standard oil became Exxon.
The most significant change to come out of this liberal capitalism is a consumer economy
Consumerism is the will to purchase goods for leisure, luxury, status, and fashion in
addition to utility.
Businesses accelerated this idea of consumerism through:
o mass production
o planned obsolescence
Liberalism is the system. The govt does its best to stay out of the way of the market.
1929 ended this with the great depression.
The great depression likely had something to do with a stock bubble.
Unemployment had been rising before 1929.
Wealth had been increasingly concentrated at the top.
Trouble in the agricultural sector.
The fed hardly did anything when the depression happened.
At the time, US dollars were backed by gold, so the fed couldn’t do as much as they’re
able to do now. FDR’s adviser Eccles blamed the depression at the concentration of wealth. People
couldn’t buy at the same rate they had been buying things, factories laying people off
further raised unemployment.
John Maynard Keynes, British economist had the most important theory on the
depression. He thought that:
o Full unemployment is necessary to keep the economy going. Liberalism didn’t
believe this was necessary, but Keynes had proof of it.
o If you can’t depend on private industry to do it, then the government has to
intervene. Some government spending will help startup the business cycle.
Keynes’ ideas became the basis for the U.S. ec