Little Shop of Knowledge

 

 

Main Idea

 

We read and discussed up to chapter 8 of The Clash of Economic Ideas where Lawrence H. White seeks to explore through historical examples of the last 100 years whether economic ideas have substantial consequences on the lives of men on a regular basis.

 

Details

 

White opens his chapter by setting the grounds of what this main clash has represented and two of the main proponents that participate in it: John Maynard Keynes and Friedrich August Hayek. The main issue is perhaps whether economic planning should be central or whether it should be individualized like in a market system. What does each system propose? How does each work? And how impacting it is for people to talk about this nowadays and follow certain policies along a specific line of thought? Perhaps the greatest example he gives in chapter 2 is the Bolshevik revolution in Russia and the impact of their flawed economics policies on the peoples of the country who either enjoyed an obscene amount of wealth or died of starvation. He then goes on to examine pre-Keynsian business cycle theory and uses the New Deal as an example of how such policies hadn’t brought about so much wealth and prosperity as they claimed. Following this chapter White goes on to explain the Institutionalist  School of Economics (where he traces back the origins of policies such as the New Deal) . Chapters 5 and 6 turn into a deeper account for two sides of the argument. On one hand there is Keynes with his “General Theory of Employment, Interest, and Money” and the revolutionizing impact this book had on economic thought at the time (turning a light on to focus on the ups and downs of an economy seen as a whole). In contrast to these ideas there is Hayek who published his book “The Road to Serfdom” where he criticizes central planning and government control policies that were followed during WWII. White then recounts for the ideas developed by the Fabian Society in England that led to the the policies of Nationalizations put into practice by the Labour Party in England. Finally (and well, finally for our approach) in Chapter 8 White talks about the Mont Pelerin Society founded by Hayek in order to gather the intellectuals opposing Socialism.

 

Impact

 

The most interesting part of The Clash of Economic Ideas was taking a look at economic history in such an entertaining and logical way. I used to hear about Keynes, Hayek and their theories but what White does through his book is really give you a sense of who they were as people and the role they played in this specific branch of the conversation of ideas. I found it fascinating to look at it in such a whole way,  knowing bits of their lives, of their theories, what influenced them, what impact they had when published, I hadn’t found such a complete account told in such an entertaining way. I now get the sense that I know what actually happened through the past years that has influenced public opinion and public policy so strongly in this branch of the social sciences.

 

Questions from the

Introduction, Chapter 1 and Chapter 2

 

Guiding Questions

(I wasn’t supposed to but I went ahead and answered some of the questions as I found them relevant to get a good grasp of the chapters).

 

Why is the clash of economic ideas relevant for the average man?

Why does White write his book in a non-linear way?

Who was John Maynard Keynes and what was his main theory? (England 1883-1946) The General Theory of Employment, Interest, and Money: The economy’s current aggregate output is governed by its current aggregate demand, and that the most volatile component of aggregate demand is current investment spending.

Who was Friedrich A. Hayek and what was his main theory? (Austria 1899-1992) The Business Cycle Theory: The economic boom period is fueled by artificially cheap credit. The credit-fueled boom inevitably ends in bust because the unsustainably low interest rate has lured investment into forms that turn unprofitable when, as it must, the interest rate rises toward equilibrium.

What is central economic planning?

What is the market price system?

What are the commanding heights?

What happened during the Bolshevik Revolution?

What is prosperity?

What is socialism? A system of government control over the commanding heights of the economy, over the financial system and major industries.

What is capitalism? Leaving finance and production in private hands subject to the guidance of free market forces – competition, profit and loss, supply and demand and the price system.

Who were Alfred Marshall and Carl Menger?

Why did Keynes Reject Russian Socialism? (1. Destroys Liberty & Security. 2. Marxian Economic Theory is erroneous. 3. Exalts proletariat over intelligentsia)

What was Keynes view on the role of Government? In other words, what does government need to do in order to accomplish “all that is necessary”? “To determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of regard to those who own them.”

What was Hayek’s view on the role of Government?

How did this Clash of Ideas begin to influence American Politics? Sherman Antitrust Act of 1890. Pure Food and Drugs Act of 1906. Federal Reserve Act of 1913.

What is the American Economic Association (AEA) and what do they strive for?  The leading professional organization of economists, originally against lassiez-faire ideas.

When did the turn-away from lassiez-faire begin and who were the main proponents?

How was the global economy before 1914? “The first age of globalization”. A time of prosperity and invention (telegraph, wireless, telephone, faster ships and trains, introduction of automobile and truck.

 What was the Federal Reserve Act?

What is progressivism? “Favoring or implementing social reform or new, liberal ideas.”

Who was Woodrow Wilson? President, enlarged role of Govt. in economy form 1917-18 to mobilize for WWI.

  Abdication of Tsar Nicholas II, Bolsheviks led by Vladimir Lenin took control.

Who was Karl Marx and what were his main contributions? (Germany 1818-83)  Wrote Communist Manifesto in 1848. Das Kapital.

Who was Friedrich Engels? Supporter of Marx, co-wrote manifesto with him.

What was scientific socialism?

 Who was Robert Owen and what did he do? Best known of “utopian” socialists who bought rural community in Indiana (New Harmony), 1824, ran as voluntary experiment in collective farming.

 What was the Socialist Calculation Debate?

Who was Vladimir Lenin?

What guidelines did Marx and Engels establish in economic policy to establish a communist state?

Who was Leon Trotsky?

 What were some of the immediate consequences of the changes in economic policy in Russia?

 

 

Author’s Questions

 

Do economic ideas have consequences?

Does the clash of ideas among economists really matter for practical policy making?

Do economic ideas have consequences?

Are competitive markets, guided by impersonal forces of profit and loss, better than government command-and-control for directing investment toward the greatest prosperity?

Which economic system – government or market control of the commanding heights – delivers more prosperity?

How and why does each system perform the way it does?

 

 

“I Don’t Understand” Questions

 

In the introduction, White mentions George Stigler and his theory on how it should be assumed that politicians pursue their own goals instead of believing that they have “deficient public understanding”. He says that the fact that Stigler preached this to fellow economists is a paradox. I don’t understand why it is a paradox? (Is it because he should assume that economists are on the same track and won’t care about this?) I didn’t quite get it.