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107 Lec 9 - Winter 2009 Copyrigh t 2 0 0.9 LectureNotes...

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Unformatted text preview: Winter 2009 Copyrigh t 2 0 0.9 LectureNotes ECONOMICS 107 PROFESSOR MURPHY SET # 9 March 2, 2009 Week #9 Monday JOHN STUART MILL — EARLY LIFE CONTINUED We have covered ‘ . Mill’s life up until his mental breakdown in 1826 at the age of 20. When Mill was 22, he had sulficiently recovered from his mental aids to go to work as an Examiner't'or the East India Company. Shortly afterwards he met Harriet Taylor in the fall of 1830.. She was a married woman but after their meeting they developed a a deep platonic relationship until her husband died and they married. She had a profound influence on him. Even before her husband died, she spent time living with Mill, sharing her weeks between him and her husband. Her husband died of syphilis - a disease very common amongst middle aged men of London at that time. . She had a reforming spirit, and a clear, incisive mind. They discussed LS. Mill’s work, and she contributed to it. She authored work of her own. Il'you are interested in her, Jo Ellen Jacobs has edited a collection of her works The Complete Works ofHaniet Taylor Mill, Indiana University Press, 1998. Mill praises her extravagantly in his own work. There is no doubt that she really had an enormous influence on Mill’s subsequent life. One might argue that after Mill’s father died in 1836, she became the driving force behind his intellectual preoccupations. From about 1840 following in his father’ footsteps he soon became an editor of a periodical: The Westminster Review. in 1843 [31] his Sync. of Logic appeared. This was the most important book on logic since Aristotle” Mill also showed that even logic had an empirical underpinning. How we would explain this nowadays is that while we confidently make existential statements from general laws, this does not accord ' special status of logic in the revelation of truth. If from the law “All men are equal” and the existential statement “Socrates“ Is a man“ we infer “Socrates' is mot-mi, we have not proceeded by a the" me of a logical syllogism to produce a new empirical truth. The truth of the conclusion is already Embedded in the general law. The validity of the conclusion does not depend on its match with reality. It rests on the empirical strength of the original generalization. So what mathematics and logic do for us, is to allow us to explore the full implications of truths that have . already been established. I From 1840 onwards, MillTs ten volumes of Principles of Political Economy with Some of Their Applications to Social Philosophy appeared III 1851 he married Harriet Taylor. In 1856, when he was 50 he became responsible for the relations of the East India Company with all the princely states In India. The nest year, 1857, he! became the Chief Examiner, the position his father had held. In 1858, the British government took over the East India ' Company and made it a hranchof government - the India Office located with the British Colonial Office: This resulted in Mill rétiring and he went to live in Saint Veran, near Avignon. | He and his wife for some years before were spending half their time in France due to her ill health. She died!‘ In the November of that year. In 1859, Mill produced his classic 0:! liberty. Harriet had worked on this with him. 1863 saw his Utilitorionism in print. And tulro years later, August Comte and Positivism. In 1865 ialso, Mill stood for trhe English Parliament as a member [or Westminster. He stood as a member of the Philtisophical Radicals, and advanced their reforms during his time as a MP. While he was there he was a niost influential voice for woman suffi-age- in this very much inspired by the views ol‘his wife before she died. Mill only retained his seat‘ In Parliament for three years and on losing it went back to France to live with his daughter-in-law, Helen Taylor. A year later his book The thjectiott of Women came out - although this was really a joint product with Harriet Taylor Mil. In 1873 he published his Autobiography. This also was the year in which he died at the age of 67. His daughter-'in-law arranged for his Three Essays on Religion to begpubllshed posthumously. Incidentally this' Is not a complete listing of Mill’s wot‘lts, there are others, as an example, his 0:; Representative Government. also. Demand, in this case, for Mill determines price. ‘0 The second case was [or manufacturing. Unit cost determines prices. Unit costs are constant. The third case was for agricultuth Unit costs were Increasing. P . countries. Mill’s contribution to international trade ' theory lasted lor a century until Ohlin and Keynes made their contributions. Mill defended Say‘s Law and enriched the debate on this law by introducing money into the analysis. He also believed that there'coold be short run deviations from full employment, despite Say's luaw, due to business crises. He produced a psychological theory of short run business fluctuations. Once again it was not until Keynes that advances were made to Mill's analysis oi'thls. DISSONA NCE IN MILL’S THOUGHT. In Mill‘s day it was possible for someone to read all of the important works in Political Economy, As a result his father, Wilt] required him to do this, trained him to 'be a classical economist in the tradition of Smith and Ricardo. He was a Philosophical Radical. In the present day Mill could well be viewed as a Unitarian in some of his pronouncements. But Harriet Taylor influenced him to be a reformer and interventionist. There is obvious dissonance in these two positions. _0N LIBERTY In his passionate little essay 0:: Liberty - this is still a classic work — viewed individual liberty as the prime goal for the individual and the major responsibility oistatesmen to produce conditions for individual liberty. He condensed his position on when a government could intervene into the actions and _ thoughts of an individual for the public good to two maxims. f‘. . . first, that the individual is not accountable to society for his actions, in so far as these concern the interests of no other person than himself. Advice, instruction, persuasion, and avoidance by other persons if thought necessary by them for their own good, are the only measures by which society can justifiably express its dislike or disapprobation ol' ' his conduct.” - ' " Secondly, that for such actions as are prejudicial to the interests of others the individual is accountable, and may be subject to either social or to-iega‘l punishment ifsociety is of the opinion that the one or the other is requisite for its protection. COPYRIGHTED MATERIAL-DO NOT DUPLICATE Mill considered a number of cases: fornication, gambling, the sale of opium t6 China, the sale of poison, drunkenness, idleness, divorce, and concluded that such cases of themselves were not sufficient cause for public intervention. But if private action in such cases produced external effects that damaged others then remedies should be talten that removed the external effects with the minimum amount ofinteri’erence. But Mill was clear, the fact that external effects occurred was not a u niversal justification for state action. Mill “95.“?! tough minded about this. In divorce there are minor children to be considered, But their welfare, Mill insists, should not be placed above that oi the adults. For poison — Mill believed in the individual right of suicide -' there should be poison registers in shops so if a crime were committed with a position - the purchase of it codld be traced. But an individual should be free to buy a poison to kill themselves with. it people chose to gamble or drink heavily without giving public offence, that was tip—to them. It's person became violent with drink, that would alter eirenmsta aces. But the state should not worry about noisy drinkers. People offended by the noise could go elsewhere. In education, persons should be free to educate their children as they wished. The state would set examinations" And those examinations needed to be restricted to matters of fact or of science. Mill, as he grew older, developed views some of which did not get into his textbooks. lie repudiated, for example, the Wage Fund doctrine. He felt that I trade unions should be permitted and that they would influence wage levels by their actions. Mill believed that the Laws of Prod action could not be changed. Thus applying more labor to a machine eventually would lead to diminishing marginal product of labor. But he thought that the Laws olDistribation could be altered. The State could and should intervene in an economy to alter the distribution ofineome so that it was more favorable for the less fortunate. We have to be careful here. While no government can repeal the Law ovaentually Diminishing Returns - this is a law of Nature— and while governments m alter the distribution of income, for example by progressive or regressive taxation, by increasing or decreasing taxes, by giving'suhsidies and hounties, etc., ' this ability does not necessarily come without cost. Prof M. asked the class what they thought would happen both to the level and the growth of real GNP is our governments totally equalized all incomes, Clearly those measures would fall due to the disincentive ell'ects to the very productive. (in the other hand, there is an area ofdiseretion where the public welfare is advanced by changes in the structure of taxes. """“—'-—-—--——-—~——._._______ Despite the viewsugf Nassau Senior that the political economist had no busiiiioss being involved in public issues, Mill went far be'yond what nowadays we view to be the staph domain of the practicing economist. Together with his later wife, Harriet Taylor, he worte The Sabjugotion of Woomt. All women, in Prof M‘s view, owe this couple a great debt. Mill also involved himself with lrish iill‘airs in the British Parlia ment when he became a member representing an Irish district. Since Cromwell had conquered lreland, the aristocracy there was English. The proud position of the Irish chiel‘tains and their followers had been muph reduced. in years before Cromwdl. there was an lrish Pale of Settlement, run in the interests ofthe English. Irish residents even had to change their lrish names to the name ofa city |e.g. Boston], or a trade leg} Smith or Baker] to stay in the Pale. Irish peasants were able to lease land but under the most onerous conditions. Some very rich land suitable to produce potatoes was leased by an individual crop of that vegetable. [A number of potato crops can be produced during a givea year .] Obviously such an arrangement had devastating eileets on the fertility of the land. A peasant farmer under this tenurial arrangement might have no long r'un interest in maintaining the fertility ofthe land: get as much out ofthe land to pay the fare to the United States; " Mill argued that the British Parliament should favor peasant proprietorships in Ireland. To him this was perfectly consistent with maintaining a free markets and the principles of Liberty. ' Here are arcias in which Mill advocated state intervention: . -> The state should intervene when persons air-e not best judge of their own interests. The state has a responsibility to provide reliel’ to the poor. The state should take over ownership of natural resources. ' The state should promote equality for women. Mill‘s leadership in Parliament in 1867 on woman’s rights started Ihc suffragette movement. The state shoiuld educate about birth control. The state sholuld promote cooperation in agriculture. The state shotuld promote peasant proprietorships. The state should promote industrial partnerships. The state shoiuld promote profit sharing. The state should tax ‘unearned increments.‘ [These would be created in cases of pure rents.] The state should purchase waste lands and improve them. The state shduid provide free, secular education. _ ;_ .. > The state should alter the laws ofinheritance. VVV VV V V VV V or End of lecture. wasas”aaaaeaaaaaaeaaaaasaaaaaa u ALFRED MARSHA-LL [1842-1924i July 26, lad: was born in Clapham |to the Greater London area. His father was a cashier' tn the Bank of England. The father was a true Victorian who wrote a tract entitled Man' 5 Rights and Woolten’s Duties. He was a strict evangelical and wished {Alfred to become a minister. He was a very hard tasluriasterto AM. 185] AM went to the Merchant Taylor's school. His lather made him work until ll at ui'ght, and demanded he learn Hebrew and forbade AM st'udying math which I AMloved. 1861 AM became Third Monitor wlhich pennitted him _ to go on scholarship to St. John’s College (afford; and would be a first step in his ordinatido as minister. These biographical details are from Keynes’ . wonderful essay on Marshall in his stay: in Biography which has a great deal more detail. | Fortunately an Uncle who had madi money in - Australia, helped AMgo to St. John’s College, Cambridge. lAM's father could not afford to put him through Cambridge where AM would not have a scholarship unlike Oxford]. Yet in his published works, Marshall de-ernphasized Math. You find it in footnotes and appendices to his works. Marshall wanted to influencedfbasinesstnen - and politicians so he wrote in 5 way that they could understand For many years this set the style in English economics. It was not until after World War ll, that the American economist Paul Samuelson, particularly with his Foundations ofEeonomiu' Anabolic, I947Jstarted a fashion for mathematical economists to write for a mathematically sophisticated audience , After graduation AM was immediately elected as a Fellow, and intended to devote himSelf to molecular physics. Meanwhile he earned his living and repaid his Uncle by becoming a mathematical master at _ Clifton College in BristoL He soon returned to Cambridge where he coached for the Mathematical Tripos. 1867 Marshall became a member of the Grote Club where he came under the influence of Henry Sldgwick. Sidgwick became a moral advisor to AM” There was considerable debate about religious belief in Cambridge at the time- And AM became concerned with Ethics. He wrote: “from Metaphysics i went to Ethics, and thought that the justification of the existing conditions of society was not easy. A friend, who read a great deal 'of what arenowcalled the Moral Sciences,constantiy said: “Ah! If you understood Political Economy you would not say that.” So I read Mill’s Political Economy and got much excited about it. I had doubts as to the propriety of inequalities of opponunig', rather than oi material comfort. Then, in my vacation, I visited the poorer quarters 'of several cities and walked through one street after another, looking at the facesof the poorest people. Next, I resolved to make as thorough a study as I could of Political Economy.” I 1868 while still in his metaphysical phase, AM went to Dresden so he could learn to read Kant in the original. COPYRIGHTED MATERIAL-DO NOT DUPLICATE There he was heavily influenced by Hegel's . Philosophy of History. He also came into contact with the work of German economists, especially Roscher. 1868 Appointed as Lecturer at St. John’s. 1870-11 In Berlin. .,: _ ‘ Marshall usually spent his, ‘..long Vacations walking, often in the Alps. 1375 Maghall visited the us and visited Harvard, Yale and San Francisco. At that time he was strongly interested in the case for Protectionism. ' 1876 AM became engaged to Mary Paley, a great granddaughter of the famous Archdeacon. Ms. PALE‘l" 'Ms. Paleyhad been a student oi AM’s- She was i oi 5 women who were the first female students at Cambridge in l871, and she was the first woman ' lecturer on Economics at Cambridge 3874?]. 'l’c? Marshall‘s first book was jointly written with her in 1879, Economics of Industry. Marshall was a perfectionist and Mary rescued much of his work from the waste paper basket, and much oi his work was due. to her prodding. We have to suspect that she was highly influential in bringing all of Marshall's subsequent work to final form. Prof M. has not come across a biography of Mary Marshall yet . [There is an excellent one oil-larriet Taylor who was so influential in John Stuart Mill’s life]. The Marshall marriage lasted 4? years. BACK TO ALFRED MARSHALL 1877-188] The Marshalls went to Bristol. Fellows at St John’s had to be unmarried. Balliol and New College, Oxford had set up a University College in Bristol. AM became its first Principal. He alsti was Professor of Political Economy. Mary Marshall lectured to classes largely consisting of women. 188] The Marshalls spent a year in Ital}r due. to .dM’s ill health. 1882 Back to Bristol as Proiessur oi Political Economy. 1883 AM was invited to be a Fellow oi Balliol and a Lecturer in Political Economy at Oxford- Jan 1 885 AM became Professor oi Political Economy at Cambridge and stayed there, thereafter. July 13, 1924 Died. MARSHALL’SECONOMICS- While Marshall’s first exposure to Economics was John Stuart Mill’s work. When he came to work out his own economics, one of the eariiest things he did - by his own account - was to translate “as many as possible of Ricardo’s reasonings into mathematics: and - ...endeavoured to make them more general” [Keyneg Essays in Biography, 151]. ' THE MARKET PERIOD. THE FIRM. Marshall, used the firm as his unit of analysis. Ricardo’s iarms would be a subset of firms. As Ma rshall wanted also to use prices in his analysis, and as these clearly were- determined. m in competitive markets, he also introduced the notion of a “mrket.” MARKETS. in thinking about Markets, Marshall rejected John Stuart Mill's classifcation of markets into three different types. ‘ Mill-l -Maritets for rare wines and pictures, etc. 9 Marshall simply did not believethat an important class of commodities had perfectly inelastic supply curves over the economic time it took for a firm to reacch equilibrium in the market place. Take Old Masters. If there was a honoring market ior Old Masters, as price rises persons who formerly held on to their collection, would sell. The idea of what was an Old Master could change so more paintings could come on the market. Forgeries, etc. _ Marshall thought you could have perfectly inelastic supply curves during what he termed the “market period.” This ior a firm i's‘the period during which there is no change in the marketplace of the stock oi commodities being sold. Obviously under such circumstances there could'be no change in the iactors of production supplying the commodity. An ex ample would be the fish markets oi Marshall‘s days in . Channeland North Sea ports like Harwichor ' Grimshy. Fisherman would bring their catch of the day home to port, and on the quay sides, the catch would be displayed on stone tables. At the end oi the day , unsold fish would be' dumped back in theocean. it you think about it only a trivial amount ot production takes place in the-market period. . Examples: garage sales, estate sales, whole flower _ markets like the Los Angeles Flower Market in the early morning for cheaper flowers. In those markets unéold material is trashed or given to Goodwill, Salvation Army, etc. i'More expensive iiowers are not dumped in trash bias but are refrigerated - so the supply of those ways- 1. Most markets tor Marshall were' er‘lectly competitive markets. Rarely; won it old get cases 0] pure monopoly where a single seller would constitute the industry. {:- '2. He decided that markets diilercd by a kind of- functional time. Ia] A firm could he in a merkaperiod as described before. lb] Firms could| be in a short nut period defined as a period during which at least one factor of production continued in employment at the same level ot‘ its input to the firm. lcl Firms could be in a long not period during which all [actors oi production could be at ered in the amount - they were employed by the firm. NOTE; each and every commodity whether “rare” or agricultural or industrial could ha experienced any ' of the three periods: market. short run, long run. . - | . . But as a pra...
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