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107 Lec 2 - LectureNotés ECONOMICS 1 B" Winter 2009...

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Unformatted text preview: LectureNotés ECONOMICS 1 B"! Winter 2009 Copyright 2009 PROFESSOR MURPHY SET#2 Monday, January 12,2009 Siam Monday CHINESE ECONOMIC THOUGHT 'I‘here are written records which contain economic thinking that go back to the Zhou dynasty in China [1066 — 771 BIL] ZHOU DYNASTY THINKING We can conclude the following about writers on economic topics under the Zhou: [1] There was-a realization that both Labor and Nature are the sources of increase in Wealth. It will be centuries before a concern for the influence of Capital enter-gs, anywhere, and even longer for Entrepreneurship. [2} Agriculture was considered to be or” critical importance {3] There was a clear recognition that people benefited from trade and that traders should be favored to produce those benefits. [4] They agreed that there should he exteruive supervision and regulation of markets. Unseasonhle grain, premature fruits, undersized Wood, [standard shes must have emerged - GM], animals and fish not fit to be slaughtered or s'old should not appear in markets. [5] The quality and thicknols of cotton and silk should be regulated. It should be noted that similar concerns emerged in the European tradition from the seventeenth century A.D. onwards. Item 5 is reminiscent of 'thegr'egulations introduced by Colbert [1619 - 1683 1th.] in France. We will meet up with Colbert again later.- RIU LIANGFU Rio Liaugfu advised Kinglsi during the years 878 - 862 3.0. wrote: “With regard to materialhe’nefit's, a myriad things produce them, and nature Contains them. Once theyaremonopolizedfiherewillbenoendtotbe ' resulting harm. To the myriad dongs in the universe, neurone has a claim. How can anyone mondpoli'ze them? A king‘s duty is to bring aboutimaterlal benefits and distribute them fairly among people [upper and lovver classes] so that the gods, human beings, and other forms of life will benefit to the fullestiextent. A plebian is called a tltiel'if he appropriates things to himself. For a' king to do so will erode the people's. support for him.” WW..— Hi-Jid1uang,A concise History of Economic Thought, Foreign Languages Press, Beijing, 1988, p. 4. I Wish to thank Zhiyong Yao for drawing my attention to this source. % Ofcourse, this does not address market monopoly and is naive about distributional rights but it does. raise the issue of monopoly. Much more sophisticated is the following which from Rites afthe ZhouDynnuy, corneas of Heaven”. "The primentinister is to make an estimate of state expenditure at the end of every year, when the five kinds of grains have been reaped. The financial plan has to be made on the basis of an average revenue of thirty years, whidl in turn should be calculated on the basis of the land utilized and the condition of the yearly harvest, fat or lean, and thereupon adjusting public expenditure to revenue.” [1). 13] During the Western Zhou, the state actually made loans for the performance of religious ceremonies,- for burials and for business purposes. [We do not see that in Europe until 1171.A.D. in Venice] Only the loans for productive rather than ceremonial purposes bore interest. During IheZhou thereisa concern fornsury. This will concern European thinkers from about the 12'" century so. until the 17". GfiAlfi ZEONG [? -— $45351] Guaanong nasanadvisnrtoflaeDukeoni. la iChin'a-l the fimt dommented dymty is the Shang footnote: To-alert you to a possible rationd reconstructiomcoutempomry to us language will be bracketed with exclamation nun-ks am e. ISZS‘EC. In 10273.me.” thefihou but the dynasty didnot control the wholeofwhat neuow considertobe (thna.'lheZhon washased outhe somuchofChinmreewdedbistuyemrgedinme Han dynasty [202133. tomm] ”rent l-I .". ' 'I, "- wanted thestate to work .ell and be wealthy. Inst: doing he, and his followers, produced an Economic! vision far in-advance of prefiousfisions. The following is what we know. about: Goon Zhong for sure. [Contemporary to. us researchers have-found much of what was considered to he Guan ZhengEs-Work .is actually-that of his man: disciples] He helivned that. the four classes ostn' [warriors], peasants, artisans and tradesmen- should dwell with flier members of their dass. This Would raise the technical level by discussions that members of a-giiren class would have withone another. And, by example, children could learn from pal-eats. Inform-flan could 'be'exchan'ged. A-n “atmosphere of'Specialization” would heprodn'oed and individuals would then go on readily tofullow. their craft, thus guaranteeing .-a steady supply-oi labor-aha particular skim.- The warriors would form dose hoods or friendship and Else would acne-them in battle as they wouldfi'ght more fiercely for. one another's survival. Their. friendships Would'lead them to “share the blessings mlfing-from sacrifices to thegods, to . console each. other upon bereavement of dear. ones and. to face weal and woe together.” " policies hire-that emerging under Franklin-D. Roosevelt. In fairly recent mlcromnomic textbooks [e.g. ’ Bouldiag’s] these are called “ever normal granary schemes.” Guan Zhong was also concerned with balancingjthe budget. andthiiiw _ FANLI—zsoonr. ' " FanHDonaernedhi-lnselfwith LW-hatis'flaelnpfimall amonntofcorré'hey. 2'. Hehad a theory or We“: m cycles albeit based onastralo‘gyfl’rof-M pointed out that Jerons in \ r: I "p.121 I" re r: " purchasing grain if abundant and selling it when there were shorfages. 6. He also F33 concerned with halandng the budget. Ihshould be noted ill-comedian with 4h above that taxes under the. Zhnu were in kind-and also ' included 3 days labor'ser-vice per year. Hawmr, travel 'wasnotinduded towhete'rerlhe State Wished the semce Iao he performed. This could put a large hill-den GUAN zr : The GaauZ-i was a work that formerly Was attributed to.Gnan'Zh0ng. Bid now the prevailing opinion is diatit' is the work of hiS-disdples written many years after Guan 22th was in oifioe. Thewritin'g of the work is' now thought to have-13km: place 14.00 years ago. - WEALTH. mealthintheGuan Zi was neither gold nor jade. Wealth‘ as availability of grain, mulberrlos, flax, dfimticaniulals, houses and the natural Wealth of land, forest'ailid watEr. ' DEFERENQES-m WALTH. 'I‘h'esecamfi from: 1. The seaSon‘Is. Nature put'v-arying demands on [am-lets over the y-rrgi Shm'lld- train individuals to he most prod'uctire'ingpeak periods. 2. Yields.- Theiyield in grain Eonld naturally vary by farm and by gearre'tc. When grain was abundant the Guan‘ Zi, also ind-vacated Q] buying It up and Storing- a. .ba'd ream, Ql would release its store wheat. Iris interesting toteetheidea ofnn “area-yflormal Granny”. merging so early. ‘ . MARKETS The Goon Zi- snags-ed flsat orderly markets . were. necessary But-it did advocate state monopolies of ironan‘d salt In order to-aemmulate gold.-B__ut'in a very. enlightened 'wgy fliefim 21' reenlnmtmded that foreign merchants he fleeto n-adeah'd that no spedal export '_ duties-he place-on them. Tar ANALYSIS or MARKETS capYnIaHfEn MATERIAL-DO NOT DUPLICATE | THINGS IN GENERAL. This was a dategory of goods. which includedall goods except gold dud grain. Markets for such goods were“heavy"f"when the commodity in question was in short supply. I Commodities i would flow into-such? markets! Goods were “light” when the good wafe- in more. abundant! supply! Prices-would then drop. Comnioditios would not flow intosucli markets. GRAIN If grain was “heavy”, prim ot'all other goods would be low. other market: would tile-“light” .Tbis nukes "tense when We remember fitat‘grain'was the major wage good. Most soda] incomiwould come [tom its production. If there was not much lJf it produced,- then each unit of grain Would purchase more of any other commodity. ‘ MONEY. Money would be “heavy” lithe government stored it. Light 11' it was released by the government. What the Gun 25 was arguing in our language was that prim were a function of money supply and that money and prices are directly correlated. Shades of the Fisher equation! It would be many-centurim-before such a clear understanding of Wham-mid the relationship of the money supply to prices would re-einerge. 'I‘HIJNIKZWG 0R ANALYSIS? Is the Guan Zt‘ just composed of 1 'cameralist l policy recommendations? 0‘:- does it contain economic analysis? InProfM.’s view it very clearly contains the latter. End-of“untamed“-eeaooaaaaaeotaamfiat January 14,2009 Set £2 Wednesday We now to rn to the third emergence of economic thinking during the Axial Age- in the lGreekl peninsula. lGreece! as not a typical river civilization at this-time as it consisted sol‘ wet-.151} difi'ercntpolais at the time when thinking about economic arrangements emerged. Loolt at the map to the right; Geographically. the Greek peninsula is composed ofa scries of small basins. ,A pom typically occupied one oflhese basins. It would consist of stretches of agricultural land surrounding a central place —the agricultural land being limited by mountainous terrain._5You typically reocbed apalfs by going through a pass. This meant that relativdy small forces could defend anypok's'. A saucepan M msronr Let us now locate Athens at-lte time ol'thc rise olipublisbed economic thinking. historically. Just like other Axial Ag'e-civilhtlougtie lGreeltl people Ind been through a period o'l'oollapo‘e. The “Heck! peninsula bad experience a Dark Ageifr‘olu 1,100 EC. to , 8003.13. Athens hem-u polis ll thoyurmflc. In its histon.-uotil the time of Xenophon, Plato. and Aristotle we can divide that history into a period before Salon's reforms [594 B.C.] and one afterwards. In Salon’s time, the dominant tom of pmduction was agriculture But a large part of the Athenian- population had become enslaved due to debt. Farmers would owe landowners {or the pmvislol clued, ctr. : “harvest failed. than their debt-would be requited by them going into slavery. .Why would people endure a system like this? Well, in a way. slavery was a form of social mum! Your farm failed, and the responsibility for you; "and your families upkeep was new placed squarely in the hands of the landowner you were indebted to. In any case'Solou outlawed flavour-£0 . mm... .goes- hectic AugustBoekh In 1817.. In 1 Just how couple: was the Athenian economy that emerged after-Salon's Mounts? Connpnred, say,tao QR There Ins been a Inajor debate to the historical Intel-store about “the complexity of A‘thenian economic arrangements.- W study ofAflIenian pol'thefieconomy Karl Buster lugstd tint {Greeld economic was simple and anal-scale. Itwas based on the houeaohi (oil-as) which was {only independent- oftt'a'ileg. an era! of This ontnged Eduard Meyer, who argued that ancient economis- mreinst like nnnodern ones if s-alla' Meyer.chinnned-that_“linthehistoryofGn-ccce, fiemeutiudanxtieeutanea B.C._corrspond tolie tonrt‘mflh and fifieentb h the modern “rid, the fifih .‘._.. 3‘ '— -. a“ “ ‘ 1v. "‘ n § ' n? If afl'sun.’ ‘ (—3“ ‘ _ - . E nnoflveiasbeen sin-oaginearlnerloenetneebuthe losistedtltatpeofithad beenanncaastoetlnerendaaad nota'n'endintt'selt. Heargned tiatgoodaandaervicea hadcnreuheedtlnrougb nnechann‘nslasofreciprodty-aad redntrnbndnoa rather than throaqghinapeeaonalnaarkets. ' Socialn'elatioas, not abstract la'nna- otsnpplyaed denan¢fitedvalus§ andlieuretationships ansdettne ratnonalcioiceof the maximisingaetor-ol‘eeononnic theorylrrelevautnnnnostaociefls.[finlq,m HuWeb‘erllBGi-IMIMGsnnan sociologist and political economist analyzed class status iaaeeienntgeo'cletid and decidedtbatitdidaotdcpend solelyenelass aoron anoaeya'nd property. Menln tltoseancietses sought status. ‘laAtheus’ and Route, nnn'ale cit‘u'ens node the mien-cm “self-styled” statasgroups to a legally defined owes-with Importantprivikgmsnch as I UROPE '5’ . ‘_ 4. fi\l\—7- . _ . - \ .. . o I _ - o g ‘ '.-. _ - a COPYRIGHTED MA ERIAL—DO NOT DUPLICATE exclusive‘intermarriage with one another‘s. daughters-1 .control of-the land, monopolies on political rights, legal defenses against-exploitation (particularly debt bondage) and occasional commonality. In doing so, they created other orders defined'liy their negative privileges - particularly the women they considered their'depeadents, chattel tiara-{raindma’m and resident aliens.” ul , av - [flamilamliom were, thusrmore interested in pursuit: that enhanced‘status-asiopposed to pursuits _.that'enhaneed economic complexity. Prof 'M. in looking at thisiagrees-T-with Eduard Meyer; 1n Athens, there was-a largelcentral place, There was a large market place, thengom. There were specialisations in the various trades. Large buildings were constructed. Furthermore. as time-wore on. ' Athens became the leader of the Dolian'Leagae— a confederation ofpoleit formed to‘meet- the-threat from Macedonia. The treasuryI oi" the league was located in .Atheus.’ _ However, there seems to he a lacking of adequate statistics to come down diecisively on-the issue of complexity. _ Going back to the thought of Karl Polanyi, he believed that around 1800 economic life in Europe became “disco-bedded” from social life as a whole. The young Adam Smith who walked around Glasgow with to hustling business, its crowded port, niece. Savv' merchants, Workout, dock laborers", etc. L. an economic system 1%.: was d'uembedded from a world of status relations. Now it is true that what Smith saw he did not label “an economic system. “ He called it a “system of nation! liberty.” So we might explain formal analysis bursting on fie scene in the eighteenth and nineteenth century. as a consequence of this a “great transformation" -— a consequence of a major meat. éhmwilifl Prof'hl. still wonders-whether the _ economic environment 'of Smith was. so totally'differeut from that observed by Xenophon, Aristotle. and Pinto tn shall turn Ill whom “Athensis consulting-ed to om had some 200,000 inhabitants during Plato's life. Suppose-With! the inhabitants'iuciudlng those not only in the cents-at places but in mitoses-were engaged in agriculture. This would give 40,0001town-dwellerah In 1740, 17,000 persons tired in Gksgirw. In 1780; the population had swelled to over 42,009. I am indebted to a discussion minnow Rod Swanson in working out this-comparison. End of lecture. January 16 .2009 Set #2. hr... . XENOP-HON [430? BC - 355?'BC] Xenophon is a contemporary of Pinto. He. is best known for hisAnobosis - a great adventure story. 10,000 Greeks went offas mercenaries to Persian territory. When the. Persians- treacherousty killed the Greek-generals of this mercenary force,- Xenopbon became one of its leaders. The new generals ted the Greeks hack to Greece by land and sea through hostiie territory. This is described in _ the aforementioned hook. Later he served the Spartans-,and was banished from Athens. Xenophon did write a book called Oiko'nomikos. is he,- then. the Father of Iiiconomicsii Definitely not. You could call him the Father offlomc Economics maybe. Economics comes from two roots —aikos. - and names The former means household. the later means laws, - practices. So you looked up Xenophon if you wanted to know when to plant your grapes. Xenophon did make the observation that if you increased the-number of teams of horses and slaves on your nikos it might not pay to add the last team. So the question you have to ask yourself did he formulate the Law of Eventually Diminishing Marginal Returns. The answer is dearly "no.” Tosay “yes”, you would have to commit a rational reconstruction. THE POWER OF CONTEXT Indeed, Xenophon, Plato, and Aristotle are magnificent examples- of how our contexts shape our cognitive processes. Prof M. agrees with. Meyer about the complexity of Athenian economic and social arrangements: that they are similar to the arrangements in Western Europe in the early- mo‘d‘ern period. Although he would be happier if he couid find good solid evidence on the structure of occupations in Plato's Athens compared to Smith's Glasgow. As we have seen Xenophon was a practical man and aware of bureaucratic structures as he had served as a leader of soldiers. His approach to the ordinary business of life concerns itself with practical issues of day to day management of-an oikos. Plato-and Aristotle are a . different kettle of fish. Plato was an aristocrat. with his head in the philosophic clouds: hut deeply concerned with the survival of his beloved Athens. Furthermore he disliked the marketplace. Aristotle was the son of a highly competent court doctor and had a strong empirical spirit.- Not surprisingly the- same set of economic arrangements called 't‘orth 3 quite different set of responSea. At this time there were no economic paradigms. no canon. no social cognitive stahiiifies to frame a common cognition. [po'lisl-at 504llnikoses. [A number he chose because it is divisible by every number from 1-10. The Ancient Greeks were fluctuated by numbers. But there-could be a practical aide. to this, as-t'he population of the elites could be broken down into small primary units depending on the circumstances and need for that] 'I‘h'e'o'ikos is the Greek-household and typically: this was a farm. This we"!!! Produce a society-- much smaller than Athens. [Suppose a"-l‘ather, mother, four children, detainee and multiply by 5040. This would producea polis of about 50.000. Add i'o'some artisans. Younger sons did not tend to stay on a farm —-1:eople--went..ofi' to: colonize. You can vary the assumptions of course. But under any plausible o_nes,_you won’t-get to 2002,0004 Aristotle, incidentally, putthe desirable sizeat Illiflflo oilcoses. Plato also believed thatiztli'ereshould not be great inequality of ownershipso that ownership should be between 1 to it o'ikoses. Plato was no admirer of- democracy. He thought desirable political organ-etions' ranked fromrnonarchy at the top through timocrac‘y, oligarcho'; democracy. to tyranny at'tlle bottom" For the supreme-ruler it would be best to. have a philosopher-hing. this hing would-rheaaaisted by .a class Inf-Guardians. In'ithe'l'deal Republic 'pnly'the Guardians ha'dipower.--AlI-chlldren elf-tile Republicwould-be educated sat-school. Tm hiya -to-'be ordinary workers would-lean school earliest Further training would be-g'iven-fto soldiers. And then after they-left the schools, those selected as Guardians would continue to; be educated; Guardians could be m‘ale-or-éfeinale. Early in childhood‘they'would be introduced tdEth'e battlefield-just'to- familiarize them with war. The}! .were not actually expected "to engage in combat‘i‘heynvguld live in communities with no personal property. Children of particular Guardian couplee'urould be children of thewhole community of Guardi'a'ns.‘-'i‘hey washr- acknosviedge all- males as‘ Father andall femalos as Mother. This did forti'ei'lato’t'o'drealn up complicated roles to prevent Incest. Such communities- would practice sexual communism -- and eugenics. Males would produce-children between '25 and SSqears of age, women bet-ween 20 and 40'. Deformed children or children from COPYRIGHTED MATERIAL- -Guard_ians, I Chfidren would be taught the useful myths-that hiuhaus come. in three kinds — Gold [guardiansly'ailver [addict-‘3']: and brass and iron [Numeral-Plato-had no requirement or concern thatthe average man betoldthe. truth. These arrangements Will lead to justice if eVerybody does their own work and not interfere with others. The-eitylsjusr When each class and member of ltE-do assigned jobs With the skills they were born with. Alina] note-on this. Schumpeter remarks that ._thos_e'_who say Plato‘s-Republic. is a communist n'jilss thezthr-ust of his arguments. Plato mapped out-a Society that would-make Athenian traditionssejcnre, a society that would lead-to an impregnable} polls, but which would-subordinate everyone-to the best in society- the Guardians. “Isn't this moreakiuto fascism?" Schump‘et'er asks. I ' PMTG'S l _' "UNBMIGl VISION-Plato‘s“ certainly in favor'ol'aioall'commiinitm He also looked with llis'l‘avor—ofi'what Thorstein. Veblen would later distinguish ...
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