The Worldly Philosophers

- the great economists

- covers those theorists whose words and thoughts concerning the creation and distribution of
wealth who have had a major impact on society.
- Philosophers who concern themselves with economics.
Their common interest: the human drive for worldly wealth

a philosopher — Adam Smith Tradition or Subsistence Economy

a parson — Thomas R. Malthus • The passage of tasks, or

jobs, from generation to
a stockbroker — David Ricardo generation through custom.
a nobleman — Saint-Simon • By this system, each unit
a madman — Charles Fourier produces all that it needs,
and it consumes all that it
a revolutionary — Karl Marx produces.
an aesthete — John Maynard Keynes • In many rural areas of
a tramp — Henry George Africa, Asia, and Latin
America, the question of
a skeptic — Thorstein Veblen who will work and what
work will be assigned to
whom is settled by custom.
Adam Smith (1723-1790) David Ricardo (1772-1823)
Example: a carpenter's child
- Father of modern economics. becomes- a asuccessful
carpenterJewish stockbroker who,
or a farmer's
by take
offspring the age of 26,
charge of became financially
the family
- his book The Theory of Moral
Sentiments  farm. independent.
Command, or Central Authoritarian
- orAnPlanned
Rule Inquiry Economy
into the Nature and Causes - "the man who educated Commons."
of the Wealth of Nation The Market System or Market Economy
• The enforcement of economic • Principles of Political
1. The first law
survival of the market
by absolute rule oris self- • Also known as capitalism or
Economy (1817) free shift
helped
interest, or the profit motive.
dictatorship. or private enterprise
the economicsystem
picture from
Smith's optimism to a
• TheThedesire
means forofwealth permeates
production and all • A system where buyers and
widespread pessimism.
human activity. to
the authority Therefore,
make self-interest, sellers, motivated by self-gain,
or profit, motivates people to perform freely• conduct business
Corn Laws, with
which the
imposed
economic decisions belong to
necessary tasks for which society is goal of making
duties profits.
on imported grains,
the state.
willing to pay. thereby effectively keeping
Examples: the building • Economic decisions are
law ofofthe themarket
pyramids low-priced grain out of England
2. The second is decentralized: Each member of
in ancient Egypt and the carrying out
competition.
of the Soviet Union's Five-Year Plans in • Rent
the labor force—chooses which job
the landlord's income
post-World
the The individual
War who
II era.overcharges for to follow;—each
riseshousehold selects in the
from differences
products soon learns that competitors what to buy withofits
quality income; and
land.
will take away business by offering more each business decides what to
reasonable prices. If wages are too small, • Iron Law of Wages — which
produce, what production
methodsstates
to use,that
andwages
wheremust
workers will hire out to another employer remain
to sell
who will pay more for their services. at the subsistence level. This
the resulting product.
Competition for these tasks prevents the level, according to Ricardo, is
individual from over-charging society. labor's natural price — the
income which is necessary for
3. The law of accumulation.
the worker to exist.
 Refers to the accumulation of profits,
which are put back into production.
 By accumulating profits, capitalists can Thomas R. Malthus (1766-1834)
purchase additional machinery, which will
stimulate further division and - Poor
specialization of labor, thereby boosting - continually criticized for his ideas. In
productivity. However, additional fact, his biographer called him "the
 THE VISIONS OF THE UTOPIAN SOCIALISTS Count Henri de Rouvroy de Saint-Simon (1760-
1825)
- England in the 1820s is described to be
GLOOMY.  a French aristocrat

Utopia: An impractical social, intellectual,  called the founder of French socialism.

or political scheme which refers to those Defining a nation as "nothing but a great
ideal states which fail because they lack industrial society," and politics as "the
ideal human beings. What other thinks science of production," he took as his
than actually exist. motto: "Everything by industry;
everything for industry."
• The one factor which utopian
socialists shared was idealism: They  workers deserve society's greatest
dreamed of the betterment of rewards, and idlers deserve the least.
humanity. It takes dreams to
 Reality proved that the opposite
stimulate people to progress. These
situation was true: non-working
thinkers were both utopians and
aristocrats received the greatest share
socialists — economic reformers
of wealth and did the least work.
who attempted to create an ideal
world by changing society.  government should arrange for rewards
to be allotted in proportion to each
Robert Owen (1771-1858) person's social contribution.
- Left school at the age of 9 to
become an apprentice to a linen
Charles Fourier (1772-1837)
merchant.
- He saw the practical world as utterly
- 9 yrs later, he borrowed $100 and
disorganized. As a solution, he proposed to
began manufacturing machinery for
reorganize society into phalanxes, or
the textile industry.
organized communes, of 1800 persons living
- Bold for a small capitalist, under one roof, as in an ultra-modern hotel
- advanced to part owner, becoming
the boy wonder of the textile
industry. John Stuart Mill (1806-1873)

- He made a fortune and called - champion of democratic liberalism

“textile king”. - founder of utilitarianism
“HUMANITY IS NO BETTER THAN ITS - He wrote his economic masterpiece,
ENVIRONMENT.” Principles of Political Economy (1848), and
• People are shaped by environment; gained recognition as the greatest economist
improvement of that environment of his age.
can produce a paradise on earth. Principles of Political Economy
• He stated that the development of • criticized laissez faire.
machine production, if organized
entirely for profit, would inevitably • laws laid down by classical economists
lead to poverty and degradation for applied to production but not to the
workers. distribution of wealth.

His solution was cooperation. - He believed that through education, workers

Envisioning Villages of Cooperation — would realize the impact of the Malthusian
planned communities. The community doctrine and would voluntarily regulate
would carry on a variety of occupations population
insuring self-sufficiency. - He believed legislation was necessary to
protect women and children who worked in
factories
KARL MARX (1818-1883) THE VICTORIAN WORLD AND THE
UNDERWORLD OF ECONOMICS
• The Communist Manifesto and Das
Kapital Francis Ysidro Edgeworth (1845-1926)
• principle of dialectical materialism- • Quantities
change occurs as the result of a blend • He applied mathematics to economics
of opposing forces. and derived his Mathematical
Psychics (1881).
The Communist Manifesto states the
revolutionary aims of communism and Frederic Bastiat (1801-1850)
maintains that capitalism must inevitably
• He failed at farming and estate
destroy itself, 
management, but succeeded in adding
Das Kapital (destruction) explains that deft touches of humor to economics.
profits arise from one product or • He wrote Economic Sophisms, he
commodity which is distinctive — labor. attacked Socialists, defended free
Because capitalists control all access to the trade
means of production. the worker must sell • Crackpot
labor-power to the capitalist for its exact
Henry George (1839-1897)
worth.
• Progress and Poverty (1879) - the
Marx’s Law of motion
true cause of poverty is land rent.
1. As the economy expands, profits fall, Solution:
both within the business cycle and - a single tax on land equal to its
outside it. rent.
2. As profits fall, business seeks new John A. Hobson (1858-1940)
survival techniques by innovating,
• He published Imperialism, a
inventing, and experimenting.
Study (1902), a devastating attack on
3. Business runs in cycles of depression capitalism as well as imperialism
and boom. • the rich get richer and the poor get
poorer
4. Huge firms dominate the business
• Imperialism refers to the extension of
scene and suppress smaller firms.
authority or control, either directly or
5. Finally, the working class overcomes indirectly, of one people over another.
factory owners and capitalism • Economic Imperialism The economic
disappears. and/or political domination of
underdeveloped countries by
powerful nations
Thorstein Veblen (1857-1929).
Alfred Marshall (1842-1924)
• Veblen was a failure in his
personal life. • Principles of Economics (1890), a
tremendous success that is still used
• Veblen's "savage world" was as a textbook.
savage on two counts. • His thesis was equilibrium — the self-
1. the practices of the adjusting and self-correcting nature of
actual business world economics; the foundation of his
which he observed were economics was the concept of time.
predatory.
2. in his examination into
the nature of economy,
Veblen concluded that
by heredity, human
nature itself is savage.
THORSTEIN VEBLEN’s WORKS
Joseph Alois Schumpeter (1883-1950)
1. The Theory of the Leisure
The Theory of Economic
Class (1899) - examines the nature of
Development (1912), describes a capitalist
economics and the meaning of
economy which lacks accumulation of
leisure.
capital.
- He doubted that self-interest held
Business Cycles, Schumpeter attempted to
society together or that people preferred
account for the Great Depression -
leisure over work.
economic ups and downs
the leisure class advertises its
superiority through conspicuous
consumption — enjoying leisure more fully 1. A short cycle. (Recession)
by being able to display it before the public.
- Conspicuous Consumption refer to the use 2. A second span lasting 7-11 years.
of material goods to flaunt a person's (Depression)
belonging to a moneyed or privileged class. 3. A fifty-year cycle evolving from
2. The Theory of Business Enterprise blockbuster inventions like the
”Technocracy" — the belief in steam engine or automobile.
government by technical experts, (Expansion; Peak)
with the use of work units of
currency to be substituted for
money.
John Maynard Keynes (1883-1946)

 He was Alfred Marshall's most

brilliant pupil.
1. The Economic Consequences of the
Peace (1919). He stated that peace
treaties are unjust and unworkable,
2. A Treatise on Money (1930). It
attempts to explain how the
economy operates
3. The General Theory of Employment,
Interest, and Money (1936).
Equilibrium: Savings (S) = Investments (I)
When S > I, ----- fewer goods and services
bought ----- Depression higher
unemployment
1. See-saw theory of savings and
investment. As a see-saw go up and
down, savings goes up when
investment goes down.
2. Elevator Theory. The economy, like
an elevator car, can stall at any level.
What to produce