SOSC Lecture #5
October 17 2013
3. Smith & Keynes
• An Insatiable, Dynamic, Disembedded Two-Edged Sword
• Adam Smith, Mercantilism & The Wealth of Nations
• The society of perfect (economic)Liberty & The Disembedded, Self-Correcting Free
• The Keynesian Challenge to Orthodoxy
• The Keynesian Welfare State
• The Attack on Keynesianism (Right & Left)
• Marilyn Waring Versus Economic Orthodoxy: UN System of National Accounts
Economist are unhappy when they have to examine variables that are not easily measured by
something like a price – Ernest Schusky
Insatiable, Dynamic, Disembedded Two-Edged Sword
• Humans are creatures of unlimited appetite. We want more, no such thing as enough.
• Possessive individualism : no such thing as enough for humans. We want more.
• Capitalism is all about change.
• Marx: Under capitalism all that is solid melts into air.
• Capitalism is all about creative destruction
• When capitalism came along, economy became its own thing
• Capitalism is a 2 edged sword, produces wealth, the goods like we’ve never seen before
• It also produces misery.
• Twenty first century capitalism, first page quote.
• 2008, beginning of the Great Ression.
Adam Smith, Mercantilism & The Wealth of Nations
• Fall of rome, Socratics (Aristotle)
• Aristotle is not a fan of economics
• To him there is such a thing as enough.
• People who can do long distance trade are fit to be made slaves
• Limits on acquisition.
• Debt: if a person is in it, something is wrong with him
• Slavery is okay
• Political life dominates economic life
• Economy was embedded in society, limited, local, regulated. (Thomson, the poor law)
• Mercantilism: target Adam Smith aims at.
• Debate: Gov’t should be aligned with old forces of traditional society? Or with the new
emerging interests (bourgeoisie)
• 1940, GB: Mercantilism is the problem. Need to get rid of poor laws etc. Colonies need
to stand on their feet
• 1848: repealed the corn law -> new Quebec group. • 1849, they adopt new document. Manifesto.
• A document that outlines all the movements towards free trade, how they are bad.
• Marx: Capital will go where it gets the highest return on its investment
• Molson, 2005 -> becomes Coors Light. An American brewery
• Workers were not free to tell their employers they quit. Regulated with guilt. Tied with
employers in ways
• All about enriching the center, decreasing imports, increasing exports
• A society of liberty, to maximize the wealth of nations.
• Limiting the power of large trading companies and governments
• Governments should pursue free trade and comparative advantage
• Smith was aware of advantages and disadvantages of free trade
• But no one focuses on the disadvantages that smith outlined
• Smith: England has a comparative advantage for creating wool, France as an advantage
in production of wine. They should trade their goods with each other.
• French and English should engage in free trade. It will maximize wealth in both
countries. Government should not interfere.
• Businesses should be allowed to fail (2008, govt bails out private companies)
• Government should only check monopoly, prices.
• Result: Perfect Liberty. Allows a fair economy
• A) Incomes,
- Must have equal distribution of wealth in society. (relatively equal)
• B) Labour,
- Labour must be free. Legally allowed to seek best return to what it brings to the market.
• C) Investment &
- Economy will repair itself. It will always go to equilibrium, self regulating. It will have ups
and downs and will become normal by itself. Private investment must be self regulated.
• D) Competition
- Must have significant amount of competition. Will not function perfectly is monopoly
exists. Government must ensure there is free, fair competition.