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107 Lec 4 - LectureNote t ECONOMICS 197 Winter 2009...

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Unformatted text preview: LectureNote t ECONOMICS 197 Winter 2009 Copyright 2009 ‘ Professor Emeritus George G. 5. Murphy | ' SET #4 January 26, 2009' Set #4 Monday ANNOUCEMENTS | 1. Set 2, 3 & 4 of the Lecture Notes will all appear this week. Check the Website _ for when they are available. Set #34 will be available on Friday after class. 2. To do well on the midterm, I recommend that you [a] read the first-5 chapters of Backhousc as a unit. This to give you a framework. [h] Use a highli'ter _ to marl: all topics in the Econ 107§midterm checklist that you know something about. [c] Then systematically go through the topics you have not marked, using Backhouse as an encyclopedia. That is, look up each topic you wish to investigate in the index of Backhouse. _ 3. Today’s handouts are [l] a group of handouts on Islamic scholars who had something to say about economic issues. ' [21 An E'c m Midterm Checklist} An extended version of this willappear on the-course'W'ehsite. 4. You can access the course website this way: hgpmwnconmclaedu Undergraduate Class Web site ”09 Winter Econ 10’? Announcements or Discussion Board or Links. ‘ JESUS AND ECONOMICS. The rise in thinking about economic issues in the West as it rebounds from the fall of Rome is heavily influenced by Catholicism Scholars went back to the Bible. Jesus, who was in the Judaic tradition, does not have an antagonistic attitude to economic development. Even firewall-known statement that “his easier for a camel to get through the Eye of the Needle than a rich man to enter Heaven” does not mean no wealthy man will enter heaven. The Eye of the Needle was a very-narrow enh‘alice into Jerusalem, and overloaded camels could not pass through. less loaded camels could. Obviously people had to be charitable, and care for the sick and infirm.- Bnt there was no absolute prohibition against accumulating same wealth. THE NEW TESTAWT. The iNcw Testament and the Apostles provide a different perspective. Early Christians were apocalyptic andi-millenarian; There would bea'Second Coming of Christ and he would. reign for a thousand years. (There were various- interpretations of what “Revelations 20:1-7” meant.) THE-CITY OF GOD. "St. Augustine, 354-430 A.D., in The City of God rebutted the charge thal Rome fell as punishment for the adoption of Christianity. For St. Augustine, while a perfect society would not exist on earth, progress was possible. Wealth should be treated as a means not an end. Private property was OK as a means. Trade was OK as a mem. All of this legitimated economic activity if it were in the right context. Your text ably sumafiaes: “..-.he [Augustine] broadened out the Old Testament notion of -developmentrto make it relevant to Christendom, not simply Israel, and provideda perspective on history that proved influential in the emerging societies of western Europe.” DECLINE OF TOWN. RlSE OF FEUDALISM. During this period, economic activity shrunk back to latifundia type farms. Except it was no longer OK to use slaves. We get. a situation not terribly dil'l'erent from Athens after Salon’s reforms. {Except that reclamation of land tended to be on the borders of Europe...‘on the frontier so to speak...where monastic orders like the Cistercians played'a major role} Theoretically,the ml was a free man who owed a“ tribute to a feudal lord and not a slave. Of course, with an oppressive Baron, there was little difference, practically speaking. But as Barons brought serl' troops [tom their regions to a battlefield at the behest of a monarch, there grew up an organization to defend regions. _ ' ‘ HOLY ROMAN EMPIRE In 89!) Pope Leo crowned Charlemagne as Roman Emperor. By 962, the territory controlied was known as the Holy Roman Empire. While Popes asserted a right to approve Emperors [and‘ Bishops and Cardinals], there was in fact continual tension between Pope and Emperors about all of this with power flowing from one to the other as circumstances altered. [Some monarchs, as an example, wanted to appoint Bishops. Others would not accept a Papal veto of their monarchy..] Ultimately what happens is the Holy Roman Empire, from being a loose and continually shifting organization of Italian cities and German States, shrinks hack to the German States, disappearing in 1880, THE NORTHERN EUROPEAN coo. From the 10'“ century on there hegim steady developments in marine technology. By 1300, the Northern European Cog radically lowers the costs of transport. The astrolabe, of course, dates back to Hipparchus, fl, 2'Id century BC. ..... 13c angle of incidence of the sail could he al[e_red by swiveliltif the sails by loosening or tighteningmpes attached ends of the booms from which the sails were rigged. Remember tha't- if a soil is held at an. he to the wind, the hack of thesail createsa partial Enum— the Bernouilli effect—which provides for-ward propulsion. The same principle is why airpl _ ' can fly, why it is real breezy on one side-of Bunche- - all, and why the air conditioning doesn’t work well when we get particular winds. :Air bleeds onto! offices on the partial vacuum side. [This final one is Prof Mia theory which could be wrong as he is ran-authority on that topic] Notice the foreca'stle and aft castle for armedmem to engage In combat. ' 5 P The upshot of-alloi' ' is that ships can tack into the 6. They don’t have to waitin poi-t until the Wind comes along that is blowing in the direction the ship. wants to go. Considerable wealth was created for Italian port cities. Go and have a look at Venice as an example. Such wealth flowed into the Churches and some part of that back iii-the Pope. So the vatican :has resources to use. W l H- 9 - Tan 12?“ CENTURY RENAISSANCE. "I‘l'iereis a refluwering of knowledge-starting in the 12m century. The University. of Bologna hadalready opened in the- 11“ century- and was basically a law school. Paras opened in the 12'ill century. Oxford also opened in] the early part of the -t:ent'ury. Naturally canon law was taught and it had law and medical faculties. Generally v WILLIAM @F AUXERRE 1140?-]241? William based ethics on natural law. He. accepts private property With qualifications. lie is concerned with the validity of interest just as Aristotle was and this becomes a continuing fascination of the Scholastics. The Schoolnaen are going to generates whole set of categories: gonna conventionaliguinus contractus, d'a'tnnum einjergens, lucruIn cessans. A'canonical treatment-oi; interest emerges for the very practical reasonthst when rich merchants went to. their confessors t'o‘_ conic-c their sins, the Father Confessor needed to know what was sinful and what was not. THOMAS or]? COBHAM 116334-235? Thomas was'coneerned with what was a-jmt price {justmn prelim]. _In. our languagewe-wmfldjhinlr of these as past equilibrium prices. If a harres‘t produced a diseqttilihrim=-in our langd'age, itwonld be sinful, the scholasfics argued, to take advantage of consumers by jacking up prices. NB—this- conversation continues to the present day in ranting forms with, as an example, Fair Trade laws. What it ignores is that scamity determined pricesare efficient. Thereis nothing like high prices to produce anew into a market remedying the shortage, as Gnan Zhong has realized centuries before. Similarly, there was a just wage [instum salarium]. ' ALBERTUSMAGNUS l200?-1280-? He isnow- known mostly fur-haying taught. lie-did hare-an explanation of what prices would be needed it"society is to be provided with goods. THOMAS AQQUINAS 1225?-1274? Both Alberta; Mag-nus and Thomas Acqui'nas were Dominican friars. (Thomas was a student of Albums). By now'discn'i'ssions of interest were no longer restricted to handbooks-for Father Confessors on what economic activities weresinful or not. They had gotten out into the general literature. Thomas :1. also published Summ theologian, c.1273 which-was a handbook on ethics and the activities of-tra‘d‘ers; etc. He accepted dnmnnn emergent lint never really accepted uterus! cease-n.9, whichin our language would be are-cognition of opportune costs. Thomas Ac, inlin‘e with the contexts ofthiasf'day, emphasized thelogical, encogimfive aspect of Aristotle’s work and downplayed its sh-ong empiricalaspgects. Remember the early schools favored disputatiern find made-a distinction between base knowledgeand divine knowledge. So wlu‘le'Aristotle COPYRIGHTED MATERIAL-DO NOT DUPLICATE became known as 'I'l-IE-PHILO'SOPHEI'IR and remained that'way until about 1?00,-it is-be'st to speak of _ NeoAristotleianism to recognize just whiat the 13th century scholastics did to the corpus of his work. Your text'is'escellent in its discussionof ’I'liorhas; A, and I see no point in repeating what you can easily read in pages 43-47. : NICOLE DRESME 1320?-13.82 Green-{e developed ideas of'money'from Aristotle. He viewed debasement' of the currency as'sinful, although the innarch could do that if it were in. the interest'of the country as a whole. Interestingly, he saw a connection between the value of money and it's exportation. Here are the seeds of the later theory of price-specie. flow. 1 A NOTE ON THE CURRICULA OF THE EARLY MEDIEVAL UNIVERSITIES The Universities set up starting with B‘plogna in the llfl' century were dangned to train thesclergy of the Catholic Church plus the doctors and lawyers each society must have. Students in the Uniiversities were first exposed to the Trivium: grammar, logic and rhetoric. Then they would be exposed to the Quadriv‘ium: arithmetic, geometry, music, and astronomy, : Following the Greeks, who had enormous respect and interest in numbers, all four of these subjects dealt with number. Arithmetic was pure number. Geometry was number in space. Music was number in lime. Music had grown out of the study of harmonics which was the study of musical intervals. measurable in number. Astronomy dealt with number in space. Having done these subjects Student could get on to the important subjects of philosophy and theology. There was also a basic distinction bemoan divine and base knowledge Topics dealing with religious subjects, astronomy which dealt with the heavens where God and the angels were located were included in divine knowledge. So the Universities had a built in prejudice to subjects dealing with life on earth, except those which focused on how earthly persons could achieVe their coloration. A NOTE ON ISLAM We in the West owe a great intellectual debt to Islam because our knowledge of the Cracks was trans- omitted to as from Islam. What bapp'eded in the Dark Ages in the Western Roman Empire wits a collapse of the monastic system, and monasteries were the chief repositories of knowledge. Monastic life continued only to the far north of the Empire'in Nonlimnherland in England, and in Ireland. Large cities and monasteries in the heartland were sacked and their} contents destroyed. We have gone over the doing of the Western udnd in the Eastern Roman Empire. ' The closing of Plato’s Academy and Aristotle’s Lyceun and the ban on learning other than Catholic learning to a diasoora heinn formed in the Persian pire of scholars'acquainted with Greek learning . Sub scholars could find hospitable cities,-courts', and s ools because Alexander the Great , when he created hisI big empire in the days of Aristotle Was highly ' ectful of Athenian culture. He had,.after all, been to red by Aristotle. So Greek knowledge was kept ali .e in his empire after his. death, and after-.ltspllt b cally into three countries“ Alexander had en urag'ed “Greek soldiers, merchant, andgovernnmn‘t o ciais to settled in the conquered lands. The I i eased contacts between the Greeks and. the peoples of __e Near East helped to spread Greek colon-e. The G . language became widely used in the cities of the M t'erranean world. Upper-class people throughout .th Near East became educated in Greek literature, id 5, and customs. I The spread of Greek culture through the lands Al antler had conquered marked the opening of a new sta e of civilization called the Hellenic age. Gr, culture spread throughout the Mediterranean wo‘ld.” - n 1 Memo Perry, Daniel F. Davis, Jeannette G. Ha ' ,Tbeodore H. Von Lane, Donald Warren,.1r., A tonal (if-the World, Revised Edition, [Boughton Mifflin Company: Boston, 1983], p. 77. _ This situation did not alter after Mohammed defined a new religion that sourced Islamic culture theieafter. Mohammed’s begin: [thejourney when. Mohammad and his followers under threat departed from Mecca] was in 62.2 All, Thisis viewed as the S’lil'l-‘t' date for Islamic culture. As noted,.dvilizafion ' in be West was shrinking, Cities were declining. “trees the knowledge of Greece had been hushauded in e centers of'learning in Islanac count-lee. Amdemies flourished, especially in medical sciences. Muhammad lived from 5.70 All? to 632. In tho centurythat followed his death, much of the contents of libraries rescued from Greece, after the closing at the Western hind, were translated. Agent period of intellectual development happened from the 9" to the 11" century- with Universities in Damscns, B dad, Bulthara, Seville, Cordoba, and later Ca ro. The study'of Greek Sources hit a high point du ' ng ibe-Abbasld dynasty under Al Mamum [786- 83 ]_in Bagdadn He was especially intersted in science, and encouraged siendsts to come to his court especially if ey knew the Greek language and sources. in 830 be ha buill a House oth'sdom where Greek works were herniated into Arabic. Naturally thinking about the economic system, as It grew more complex,_emergad. There are course handouts-on Abu Yus'ut' (732-798 AD.) and Abn Hamid ail-$hazali {1058-1111 AIL). Aha Yusai‘is-a canieralist. Al-Ghazali has been called the Thomas . Anguilla of Islam} My, an outstan‘ding'iutelleCL'. ' Bu Ibis main interest was really a reh'fioua'on'e. Finally, Ibo Rushd [Avenues] . His greatest work was commentaries on “the works of Aristotle which bad influence until the Renaissance. Professor M-urphy'and his research assistant are looking into these authors at the moment, and as they complete their investigations will put up summit: e ha-ndouts'on the course Website. One remarkable p- of information is. the following. Adam Smith in the. is WhaflhofNat‘ions ]l7?6] is known for his-discussion of a pin factory as an example'oi the division of labor. Al-Ghaeali who lived from 1058-1111 alsoluid a discussion ofthe' division of labor based of all things:l needle factory. This is approximately ser'en centuri bet ore Smith. - Recently there has been arrecnrgence of Islamic- int'erest iii economic thinking. One claim 3‘ has been nude, which came out of that -inter'est,_'is Thu Khaldun [1332-1406] was-the true father of economics rather than Adam-Smith. _ 'i’rolessor Murphy and his students in 2 i Fiat Lu: seminarsfli'all 12007,;and Winter 2008]_lookeii into this. There-ism evidence tosnpport the idea that f thinkers like David Home, Adam Smith :or the 5 Phydon'ats-actualiy- ever got exposed to the writings et Ihm Khaldun. lbn Khalduu was unfortunate in being born the wrong'iimc. There-is no doubt-he had-enormous intellectual ability. Arnold Teynhee calls him the World’s greatest historian. Before Ibn Ehaldon, _ mundane-museums that showed howihe will oi" God hadprevailed in the past, orinvolved the doings-Pf great monarchs. Ibn Khaldumhovrever, had en analytical and sociological approach. Footnote; one might malte- the claim thatle was the father or sociology. But Professor Murphy’s investigation ol'. textbooks-on the history oisodology has not so far produced any mention of him in that capacity. He wasmterestedinhowatyfiealMediterraueanand Islamic society developed over time. Favored areas-in the territory of somatic P201316 Would produce dines“ . de . populations and settled life. Caliphs would profi 15mm to provide the net-emery conditions for a developed divided oflahor. But as time. won-eon, desire ol'rulers for hnmrieswould he counterprod '_ .' and lend tosocial decline. End oflecture$1=¢¥ta=lm¥¢ti$¥d=¥**$*¥**$*$#*¥**$ at 8' 3*? westwards. Returning Crusaders may hare helped to spread. the plague. 'But in less-than 20' years it may have killed as many from a third to three. quarters offtheipopulatiolc of Europe and Asia. {Estimates veril- . Frauen fromiSSTto I453-wasrv'ent by the Hundred ”Year’s War-between itself and England, But thelatte'r fill-of the some. century-was more stable. A‘sso the preceding developments. in marine technolb'gy which'had substantially reduced international n'einsportcosts, and populations on the -. bound created an enfironment'for economic: 'derelopmcnt. The voyage of Christopher Columbus-by discovering new trade routes with newly discovered trade winds, and incidentally, circumventing- the problems of 3 trade barriers in the Mediterranean, ushered in a period of ‘ expandingworid trade; STRENGTHERED MON'ARCHIES In the-early. Middle Ages, there had been monarchs. But the locus of political power was at the baronial leeel. Kings could he,.and were, overthrown by coalitions ol' barons. In England as early as 1212, the English barons and then the English churchhad forced King John to sign a document that defined baronial rights and circumscribed modal-eldest ones. But with the condoning-gravid: of trade, and thegroivth'of forms-of tan_afioh,-monarchs'grew more powerful. Also the terfihle'vvars that beset early modern Europe produced .a deep lougingiior stabilityfiti we begin to get monarclnwho were not simply a i‘eudalprimusugeepores [first meet equals] but to hate varying Pegrees of absolute powerJThisis going to develop-lo the point that there are those who will argue d: _t monarchs. haven disinc right to rule, which v'rie will discuss later] Them-and edrninlstrations-ot monarchs were centers otsocial gynamism from about 1500-1750. As trade-and ecdnnmlc activitylhecametmare important and more,salient_,_'many ol' the advisers, that were g-roupéd around the-courts, beganto advise on mattelgs of trade,- etc. COPYRIGHTED MATERlAL—DD NOT DUPLICATE KAMMERALISM The German term for these Advise ‘— hammer-alias --and'tbe social conversation to which they belonged kaolin-erotica: is highly: descriptive. From the German noun hammer. Chamber, or in the wider sense, chancellery. | NICCOLO MACHIAVELLI 1468-11527 Machiavelli in H Principe 1532 basically argued that monarchs should-not- be judged ‘hy the morality of- particular acts but by otter'all results. Machiavelli who was-prominent in Florentine politics in Italy, had fallen out of favhr, and wrote his book to get back in favor with the Medicis. But soon alter, Florence became a'Republic and Machiavelli died a distrusted, embittered and disappointed man. More than this, Machiavelli had basically disowned his own beliefs to get back in power. While he is now viewedas an apologist for ruthless, cunning and conniving monarchs. his larger body of work has a much moire ethnical and nuanced approach .to the exercise ol,‘ power. RISE OF MERCHANT CLASS The economic changes we have been talking about also shifted the locus of new wealtlti'l'ormation l'rom agriculture and the barons to tradeiand the merchants. With the growth of printed materials [printing press, William Caxton, England, 1476] the new wealth makers created a literature, advocating their own interest. ; BUILIONISM In the sixteenth century, the argumfent that the. merchants made was that there should be an export surplus. The monarch should take steps to ensure this. As trade was conducted in gold or silverzinihose days, the export surplus would increase'the national slockof gold-sir silver. SINEWS OF WAR . An argument for doing this was it gave the monarch command of stocks of wealth to defend the country. CRISIS MANAGEMENT There was some realization that control ol‘ 2 stock of gold or silver gave the monarch the power to debase the currency and gain more; purchasing power in an emergency. You may wk why monarchs declared monopolies of currency. Minting coins is a form of business activity and in a regime of comp...
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