Economic History Final - key terms

social emulation - Veblen

• ownership provides social status

• desire to copy the lifestyles of the rich or of those who are slightly richer than oneself

conspicuous consumption - veblen

• the higher the costs, the greater the ability to show wealth and hence, social status

waste - veblen

• an expenditure is wasteful when it does not serve human life or human wellbeing on the whole

• for consumption to qualify as conspicuous it must be wasteful

creative destruction - schumpeter

• a feature of capitalist development; it’s necessary for economic progress

• crisis is a process of creative destruction → old forms of production are replaced by new and superior ones

capitalism as an evolutionary process - schumpeter

• change isn’t a response to external signals; change comes from within the capitalist system

• change comes from a persistent search for new methods of production and new forms of consumption

• it doesn’t occur smoothly; it involves setbacks, disruptions and even crisis

innovation - schumpeter

• doesn’t evolve evenly, it takes places as clusters

• initial innovations are followed by a series of following innovations until a specific tech is exhausted and replaced

• it is the source of profit in a capitalist economy, and entrepreneurs act as agents of change for innovation

business cycles - schumpeter

• innovation is a cumulative process and triggers further innovations → economy develops in a cyclical manner

• phases of economic expansion based on the introduction and diffusion of new technology or goods

• they typically last 40-60 years and include a period of inception, growth, peak, decline, and depression

the role of non capitalist outside - luxemburg

• the outside absorbs surplus production

• the outside provides inputs, including raw materials

• the outside provides possibilities for new investments

geographical split - luxemburg

• center/periphery

• the image of voluntary exchange and peaceful competition in the capitalist center depends on the force, fraud, oppression, and looting in the periphery

imperialism - luxemburg

• the need to incorporate a non-capitalist outside

commodification of outside areas - luxemburg

• the areas are transformed into market economies

• being capitalist, they can no longer absorb surplus production (and provide cheap inputs)

war economy theory - neurath

• govs don’t rely on markets and measure in terms of money

• calculate the inputs and outputs in terms of physical units rather than monetary values

• as a result of the war, the production of material goods (weapons) takes precedence over profit considerations

• produced is what is needed, not what delivers the highest profits

calculation in natura - neurath

• alternative economy based on calculation in nature instead of money calculation

• measurement should be based on physical units rather than monetary values

inventory of living conditions - neurath

• interest of the social whole: development of an inventory of living conditions reflecting the living conditions of diff groups in society

• production is oriented toward the improvement of living conditions

• this is not always easy however

rationality - weber

• based on calculation rather than instinct, intuition, tradition

• western capitalism stands out for its use of comprehensive rationality

• combination of formal and substantive rationality

formal rationality - weber

• techniques and institutions that allow for rational economic calculation

• money, the company form, book-keeping

• capitalism is all about profit-calculation

substantive rationalist - weber

• a rational value system and a related code of conduct

• people act rationally b/c they believe certain behavior is rational

• social norms, traditions, religion, culture, and law establish values and affect individual behavior

the spirit of capitalism - weber

• modern capitalism emerged in Western Europe due to substantive rationality

• fed by the protestant ethic, hard work as a religious duty

• today, people who are capitalist tend to not be religious, but they continue to work hard

• “man exists for his business instead of the reverse”

bureaucratization - weber

• bureaucracies are characteristics of modern capitalism

• they consist of: division of labor, hierarchical structure, employing people with certain qualifications

• filing documents, civil servants needing to complete tasks regardless of mandatory working hours

slave economy - dubois

• slavery wasn’t accidental; capitalism benefited from the slave economy

• while slaves suffered, slave owners made substantial profits

chattel → wage slavery - dubois

• the civil war didn’t end slavery, it just changed the nature of it

• at the end of reconstruction, wage slavery replaced chattel slavery

• freed women/men were denied access to land

• southern states introduced Jim Crow laws

the color caste - dubois

• besides white capitalists oppressing & exploiting black labor, white labor was also complacent & benefited

• white workers viewed black workers as competitors and pushed for discrimination & exclusion

• a stratified society in which black/non-white workers occupy the lowest level

black marxism - dubois

• racism prevented the formation of a unified working class that could take on capitalism

• the revolutionary subject wasn’t the working class in general; it was the black/nonwhite workers in the US and around the globe

racial capitalism - dubois

• capitalists benefited from racism as they could pay lower wages to certain racially defined groups of workers

• capitalism may be able to exist w/o racism but given the potential power of a unified working class, perhaps not for too long

making of the market economy - polanyi

• markets existed before capitalism but they were always embedded in govs and laws

• the shift to capitalism led markets to be disembodied from society; they are now governed by supply and demand/the profit motive

• society becomes increasingly subordinated to the needs of the economy rather than the economy serving society

fictitious commodities - polanyi

• creation of a market economy demands for commodification of land, labor & money

• land, labor, and money were never intended to be sold on a market

• they look like commodities but lack essential characteristics of commodities

labor - polanyi

• not a commodity b/c it can’t be separated from the bearer of labor power (worker)

land - polanyi

• another name for nature which is not human made and therefore not created for a market

money - polanyi

• natural function is being a means of exchange “token of purchasing power”

• it’s a form of measurement rather than a commodity

• it’s function as a store of value dominated its function as means of exchange

forms of money - polanyi

• commodity money: coins made out of precious metals

• representative money: paper money that’s backed by gold/silver holdings

• fiat money: paper that presents a redeemable debt, usually issued by a gov or central bank

• virtual money: internet currencies (bitcoin)

self protection of society - polanyi

• societies have a natural tendency to shield themselves from inclusion of the market

• each initiative to expand markets is met by a counter initiative to limit the scope of market forces

• the result is called re-embedding/regulation of markets

double movement - polanyi

• a move to ‘free’ markets is met by a move to ‘regulate’ markets

• the markets keep themselves in check essentially

distribution - clark

• clark set out to find a natural law that explains the distribution of wealth

• classes become production factors: capitalists, landlords, workers → capital, land, labor

• capital becomes a permanent fund and land becomes capital, rent becomes interest

marginal product - clark

• the last unit of output produced by the last unit of the production factor (capital or labor)

marginal productivity - clark

• the extra output that one unit(worker) adds to the total production

• each person is paid based on how much value they individually add to the business

consumer surplus - marshall

• the extra happiness/benefit a buyer gets when they pay less for something than they were willing to pay

• the amount of money a buyer/consumer saves

producer surplus - marshall

• the extra money a seller gets when they sell something for more than the lowest price they were willing to accept

• how much more than their minimum that they earn

ranking utility - pareto

• the utility/desirability of something can’t be quantitatively measured, but it can be ranked

• rankings can be expressed in ordinal numbers

Pareto optimality

• when you can’t make anyone better off without making someone else worse off

• doesn’t mean equality, just means that resources can’t be reallocated to help one person without hurting someone else

Keynesian revolution - keynes

• Keynes challenged several major neoclassical assumptions

supply doesn’t automatically create demand - keynes

• money circulates in the economy, but there are 3 leakages where money can ‘run out’ of the economy

• these leakages occur when people save money, buy imports from foreign countries, pay taxes to the government

• these leakages can be offset by businesses borrowing money for investments, exports, and taxes spent for public consumption

interest rate doesn’t equalize savings & investments - keynes

• savings mainly depend on income

• interest rate is determined by liquidity preference (people’s desire to hold money)

a cut in wages doesn’t increase employment - keynes

• cutting wages only reduces unemployment if it doesn’t affect demand

• when a cut in wages reduces demand, it will not create more jobs and may very well increase unemployment

economic equilibrium doesn’t guarantee full employment - keynes

• because demand doesn’t automatically rise to meet the potential supply of labor, the economy can settle into a stable state where people are willing to work

• but there isn’t enough demand for the products they could produce, leading to persistent unemployment

• full employment is a special case that doesn’t emerge automatically

multiplier effect - keynes

• gov spending on income leads to more demand, more investment, and more income

• increases overall economic activity far beyond the initial expenditure

accumulation and full employment - robinson

• wages are variable: too low wages cause a lack of demand, too high wages cause a fall in profits, and subsequently investments

• too high wages can also lead to increasing prices and inflation

• solution: real wages that increase in line with productivity growth

role of trade unions - robinson

• real wages can’t increase automatically, they’d only increase due to trade unions

• strong unions can also enforce too high wages → fuels inflation

resistance against full employment - kalecki

• political resistance, general dislike of gov interference

• dislike of the direction of gov spending

• dislike of the social and political changes resulting from the maintenance of full employment

political business cycle - kalecki

• period of economic crisis → pressure of the masses forces gov into deficit spending → brief economic boom

• big business don’t like gov intervention and low unemployment → pressures gov to cut back spending → economy slumps again

theory of financial instability - minsky

• economy is unstable b/c of capitalist finance, instability is built in the system

• economic stability causes borrowers and lenders to take more risks, leading to instability

• people start borrowing more and more until the safety margins are used up → something small happens and people can’t pay for it → economic crisis

• then the cycle starts all over again

solution to financial instability - minsky

• big gov reduces risk by regulating financial markets, adjusting to new financial practices

• big gov takes care not to fuel inflation

the ‘neo’ in neoliberalism

• neoliberals favor a strong state that creates markets

• favor states that make sure markets work properly

• support markets and individualism, against collectivism and welfare states (Keynesian idea)

the mirage of social justice - hayek

• the market is spontaneous - it isn’t controlled by anyone in specific, it just happens from people acting on their own

• justice applies to actions of human conduct instead of the outcomes of their actions

• the unequal distribution of the market is the result of many individual actions instead of a specific plan/intention

• justice can only be applied to the rules/conduct of the market, not the final distribution it produces

monetarism - friedman

• crisis doesn’t occur due to lack of demand, but due to inadequate monetary policies (poor management of the money supply)

• instead of constantly adjusting monetary policy to boost the economy, central banks should focus on steady money supply to keep prices stable

• an example of this is the Volcker Shock, where the federal reserve raised interest rates to fight inflation, which led to more recession and unemployment

supply-side economics

• monetarism

• tax cuts

• deregulation

• de-unionization

human capital - becker

• the idea that investing in public education drives growth, welfare, and equality

• attempting to measure return on human capital, estimates that 2/3 of gains are due to education

• investment in college education yields a higher return than investments in physical capital, even if tuition is increased

• private economic gain = social economic gain

• individuals, not the public, should bare the cost of college tuition, b/c only the individuals are reaping the benefits