from subsistence to wealth - university of california ...bev.berkeley.edu/pe 100/lecture slides/13...
TRANSCRIPT
From Subsistence to Wealth
Max Weber, Adam Smith and the Revolutions in Political Economy
Review: Material conditions give rise to theories of political economy
• Famine • Agricultural life • Rise in State power
Forces of change: moving toward a commercial revolution
• The Itinerant Merchant breakdown of social
hierarchies and rise of trading clas + money economy • Urbanization no feudal laws applied…outside
framework of social power • The Black Plague created demand for labor • The Absolutist State demand for weapons and
textiles + unified domestic market • Population growth and inflation more demand for
goods (food, clothing) • Mercantilism poor laws, industrial policy, support for
merchants, efforts to create national wealth
Commercial Revolution
• Opening of the Atlantic—the “New World” • Europe and Asia • Europe and Africa
Social and economic consequences
• Developing social mobility and rise of “interests”
• The “profit motive” • War and the “Bubbles” War Govt. debt loans from chartered
companies stock sales + borrowing in exchange for bonds - new companies created stock sales + pyramid schemes crash……
From the Commercial revolution to the
Industrial Revolution: The origins of Capitalism • What does it mean to industrialize?
• Industrialization and Capital • What is Capitalism?
– Private property – Where does capital come from? – Savings and investment
• Why? – The State – Culture
The origin of accumulation and saving: The Protestant Ethic
• A new value • Luther and Protestantism
– The individual – Individual power and freedom
• Calvin: achievement + savings = capital accumulation – Predestination and its challenge as a guide to behavior – Diligence, thrift, and a new kind of guilt: Protestant
Ethic – The Protestant Ethic and the Industrial Revolution
• Problems with the Argument
Adam Smith: The birth of Political Economy
“I have never known much good done by those who affected trade for the Public Good”
Adam Smith
Smith’s view of human nature: individual rationality
• Humans are social beings: They want to “truck, barter, and exchange.”
• But they are also greedy, always wanting MORE
• And they have little incentive to work: “A preson with no property can have no other interest but to eat as much and work as little as possible.”
• They are desperate for power and protection: • “The pride of man makes him love to domineer…he will prefer the service
of slaves to that of freemen. And the planting of sugar and tobacco can afford the expense of slave-cultivation.”
Luckily, Individual Greed promotes social good
• “Every individual….intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. . . .By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
• What ARE the interests of society?
Through The Market Mechanism
• All of us exercising individual self interest • Will compete for scarce resources • Competition provides the goods that society
wants • In the Quantity that society desires • At the prices society wants to pay
If Everyone is self-interested, how do we get what we want?
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our necessities, but of their advantages.”
Competition
• Each individual wants to take advantage of his neighbor’s greed: self-interest makes us ruthless…….
• But if self-interest runs away with us, competitors will beat us
• So we can’t charge too much or pay too little • We would like to collude with others to set the
price…..but an upstart will always slip in with a lower-priced product
Through competition society gets what it wants
• Producers must heed society’s demands
Smith's Great Transformation:
Selfishness leads to social harmony • Interaction of selfish motives social
harmony • No Planning authority, no Leviathan, no
“Prince,” no “just price” • Prices are kept in line with production costs • Society tells producers what to do • High prices are a self-curing disease.
The Market is self-regulating
• The Market is it’s own “guardian”
• It is the paragon of “freedom” but the strictest taskmaster
• Is Economic freedom an illusion?
The Theoretical “Freedom” Vision
Reason Individualism
Political Liberalism
Individual Freedom
Happiness
Capitalism Wealth ____
Hobbs Locke Rousseau
John Stuart Mill Thomas Jefferson
Locke Mill Jefferson
Adam Smith
1780 Last Witch burned in Europe 1784 American Society to Abolish Slavery 1787 British Society to Abolish Slavery 1792 Wollstonecroft “Vindication of Rights of Women