The socioeconomic view and the classical view are two approaches that influence managers’ priorities and actions in large organizations. There are three mutually reinforcing mechanisms of shared-value creation: reconceiving products and markets, redefining productivity in the value chain, and creating shared value. CSR focuses on sharing economic value created to build social value, while CSV is the process of changing the relation between a firm’s operations.
Corporations can create shared value in three ways: reconceiving products and markets; redefining productivity in the value chain; and creating shared value. The concept of shared value focuses on the connections between societal and economic progress, which can unleash the next. Creating Shared Value (CSV) is a management strategy focused on companies creating measurable business value by identifying and addressing social problems that intersect with their business.
The five elements for a collective-impact effort to achieve its aims include a common agenda, a shared moral responsibility, and the creation of well-being. Traditional economics contains relevant sociological dimensions, consisting primarily of conceptions and elements of social economics. This study aims to disentangle the concept of creating shared value (CSV) from corporate social responsibility (CSR).
The primary difference between CSR and CSV is that CSR is about using a business’s resources to respond to social and environmental problems, while CSV combines corporate success with social progress. Companies may team up with governments, NGOs, and rivals to capture the economic benefits of social progress.
Creating Shared Value and Corporate Social Responsibility are distinctively different if one assumes CSR as an altruistic act. In recent times, the term has moved from CSR to creating shared value, which is simply corporate policies and practices that enhance competitiveness.
📹 The Most Important Economic Schools of Thought Economics Explained
························· An economy is a collection of production and consumption processes that …
Is Shared Value A Way To Achieving Economic Success?
Shared value primarily serves as a pathway to achieve economic success, as highlighted by Porter and Kramer (2011). This concept contrasts with traditional ideals of social responsibility, philanthropy, and sustainability, positioning itself as a novel approach to combining profitability with societal benefits. Leading companies like Nestlé exemplify this model, which is increasingly vital for businesses seeking innovative economic opportunities. Shared value bridges the gap between corporate success and community well-being, a connection that has diminished in recent management practices.
This framework allows corporations to generate economic value while concurrently contributing positively to their employees, customers, and communities. By redefining business objectives around the creation of shared value, firms can unlock new waves of innovation and productivity, ultimately enhancing their competitive advantage while fostering community growth. Measuring shared value involves evaluating both social impact and business success, ensuring organizational goals are aligned with addressing societal needs.
In essence, shared value represents a transformative business model that enables companies to thrive economically while also uplifting the communities they inhabit. In summary, creating shared value stands out as a strategic approach for modern organizations aiming for sustained growth and societal impact.
What Is The Classical View Theory?
The classical view of concepts, rooted in Aristotle's philosophy, posits that all complex concepts can be analyzed classically, without asserting whether these concepts are universals or mind-dependent. Historically influential, this theory holds that individuals possessing a concept understand the necessary and sufficient conditions for it. In organizational terms, it emphasizes hierarchy and a structured chain of command, treating organizations like machines, where efficiency stems from clearly defined roles and tasks.
This view also extends to classical economic theory, emerging in late 18th-century Britain, suggesting that economies are self-regulating and can achieve natural real GDP levels. Classical economics provided insights into the broader forces affecting industrial capitalism, advocating rationality among economic agents. The classical management theory further underlines an assembly line approach, breaking down tasks for specialization and clarity in worker roles.
This perspective is echoed in organizational communication, which aligns organizations with mechanical efficiencies. The classical view has been critiqued, leading to discussions on its limitations compared to behavioral theories that account for indirect inputs to efficiency, highlighting the importance of areas such as motivation, where financial rewards are regarded as primary incentives for employees. Overall, classical thought significantly shaped conceptual, economic, and management theories, emphasizing organization and analysis.
Is There A Difference Between Economic And Socioeconomic?
The term economic pertains to the economy, specifically individuals' income and finances, while socioeconomic connects financial and social issues. Social economics, also known as socioeconomics, is a branch of social science that studies the interplay between social behaviors and economic activities. In American English, "socioeconomic" is commonly used, concerning matters tied to social and economic domains. Socioeconomic status (SES), often abbreviated as SES, assesses how occupation and education, along with wealth and income, rank individuals comparatively.
SES influences people's access to healthcare, housing, and overall well-being, demonstrating unequal resource distribution and societal privilege. SES encompasses income, educational attainment, and perceived social class, thus revealing insights into systemic inequalities. Research indicates race and ethnicity intricately relate to SES stratification. While "socioeconomic" focuses more narrowly on financial aspects, "social class" broadly includes wealth.
Furthermore, financial literacy is crucial for economic stability, yet disparities exist across demographics. This construct deeply influences life expectancy and quality, demonstrating the significant impact of social and economic factors on health and longevity. Overall, the study of social economics reveals vital connections between economic conditions and social dynamics within various populations.
Does An Economy Create "Shared Value"?
The concept of "shared value," as introduced by Michael E. Porter and Mark R. Kramer, contrasts sharply with the conventional focus on "shareholder value" as the sole goal of economic activity. Shared value emphasizes generating economic value while simultaneously addressing societal needs and challenges, moving beyond mere philanthropy or corporate social responsibility. It represents a strategic framework where businesses integrate societal progress into their operational models, ultimately driving new economic opportunities.
Creating shared value involves three primary strategies: reconceiving products and markets, redefining productivity in the value chain, and enhancing societal impact through business practices. This framework suggests that a company’s competitiveness and the well-being of its surrounding communities are interconnected. By investing in local communities, businesses can stimulate economic activity, create jobs, and foster entrepreneurship.
Thus, shared value is not just a moral obligation; it has been proven to catalyze economic growth. Many organizations, including Walmart, have embedded creating shared value into their enterprise strategies. This paradigm shift advocates for aligning profit with social impact, suggesting that successful businesses can indeed thrive while contributing positively to society.
What Is The Classical View Of CSR?
The classical view of corporate social responsibility (CSR), largely associated with economist Milton Friedman, asserts that a company's sole responsibility is to maximize profits for its shareholders. This perspective suggests that any social activities that incur additional costs detract from profit, thus management should prioritize profit maximization above all else. In contrast, the socio-economic view posits that management should also consider the well-being of various stakeholders and the broader social welfare, reflecting a more holistic approach to business operations. This view acknowledges that corporate activities impact social, environmental, and labor dimensions, leading to the notion of CSR as a set of ethical obligations beyond mere profit-making.
Discussions around CSR typically differentiate between narrow and broad views, with the narrow view limiting business objectives to profit maximization, while the broad view encompasses ethical, moral, and rational dimensions of corporate behavior. An empirical study in Lebanon shows a significant support for CSR among managers, with a majority favoring modern and philanthropic perspectives over a strictly classical view. Additionally, the triple bottom line framework—balancing profit, people, and planet—serves as a method for measuring accountability in corporate practices.
In summarizing the evolution of CSR, various theoretical frameworks, including legitimacy and stakeholder theories, provide insight into how CSR concepts adapt and shift in response to globalization and changing societal expectations, advocating for an integration of ethical responsibilities in business.
What Are Socioeconomic Views?
Socioeconomic status (SES) refers to the relative or absolute levels of economic resources, power, and prestige tied to the wealth of individuals, communities, or nations. Socioeconomics, often called social economics, is a branch of economics that examines the connection between social behavior and economic activity. Its primary goal is to understand how societal changes shape a nation’s economic status. This interdisciplinary field analyzes how social factors influence economic activity and vice versa.
SES is a multidimensional concept encompassing income, education, and occupational prestige, impacting individual behavior and thought processes. It highlights the growing need to address socioeconomic inequities and their implications for welfare and development in societies, particularly in the U. S. and Europe. Moreover, SES is assessed through various indicators such as living conditions and financial security, often categorized as low, medium, or high.
Ultimately, socioeconomic status serves as a descriptive measure of an individual's or group's social standing based on occupational, economic, and educational criteria, reflecting their position within the hierarchical structure of society. Recognizing these constructs is crucial for understanding wider social dynamics and disparities.
What Is A Classical View Of Economics?
Classical economics is a prominent economic school of thought that emerged in Britain during the late 18th and early 19th centuries, primarily associated with economist Adam Smith. This theory advocates for free-market principles, private ownership, and limited government intervention, arguing that economies are self-regulating and that markets function best without interference. Central to classical economics is the labor theory of value, which posits that an item's worth is derived from the resources and labor that went into its production.
Key tenets include the belief in free trade, competition, and minimal political intervention, challenging previous mercantilist practices. Classical economists emphasized that economic stability and prosperity arise when individuals and markets, rather than governments, drive economic activity. The framework established by classical economics laid the foundation for modern capitalism, promoting ideas like laissez-faire policies, balanced budgets, and the gold standard.
Overall, classical economics advocates that both individual and societal interests are best served through minimal state involvement in the economy, supporting the notion that self-correcting market forces lead to optimal resource allocation and economic outcomes.
Is Creating Shared Value The Savior Of Capitalism?
Porter and Kramer (2011) introduced the concept of Creating Shared Value (CSV), positioning it as a breakthrough approach to reconcile business profits with societal benefits. CSV challenges the notion that corporate success comes at society's expense, suggesting instead that addressing societal issues can lead to economic gains. This paradigm shift aims to reshape capitalism and its societal relationship, paving the way for innovation and productivity growth.
CSV encourages companies to redefine their purpose beyond mere profit maximization, focusing on generating economic value that simultaneously yields social benefits. This approach allows companies to differentiate themselves, innovate, and harness new growth opportunities. Moreover, it can reinforce corporate strategies more sustainably than traditional competitive advantages, like cost and quality.
Despite its promise, CSV also faces skepticism regarding its ability to genuinely foster ethical business practices. While it attempts to align corporate responsibility with economic incentives, critics argue that CSV may not be the comprehensive solution to capitalism’s challenges. The contemporary business environment grapples with a crisis of trust, where companies are often blamed for various societal issues despite efforts in corporate social responsibility.
Ultimately, while CSV is heralded as a means to restore faith in capitalism by reconciling financial success with societal wellbeing, its efficacy and sincerity in practice remain contentious.
What Are The Two Types Of Economic Models?
Economic models are categorized into two main classes: theoretical and empirical. Theoretical models aim to derive implications about economic behavior based on certain assumptions, while empirical models utilize statistical data to analyze and predict economic trends. Adam Smith, the father of economics, introduced the concept of the "invisible hand" in his 1776 work, The Wealth of Nations, highlighting the economy's self-regulating nature. Economic models simplify complex economic relationships, illustrating how variables interact and enabling predictions about economic behavior.
Key models include supply and demand, the production possibilities frontier, and the Phillips curve, each serving specific analytical purposes. Econometrics employs statistical methods to test hypotheses and forecast trends from historical data. Models also differ in complexity; simple models clarify basic concepts, while complex models tackle intricate scenarios. Finally, microeconomic models focus on individual agents' decisions, whereas macroeconomic models assess the economy as a whole, demonstrating the diverse applications of economic theory in understanding and predicting economic phenomena. Understanding these models is fundamental for economists and related professionals.
What Is Shared Value?
The concept of shared value, defined by Porter and Kramer (2011), refers to business strategies that enhance a company's competitiveness while improving social and economic conditions in the communities it serves. This approach integrates profit-making with social responsibility, creating measurable economic benefits by addressing social issues that intersect with business objectives. Unlike traditional corporate social responsibility, shared value emphasizes the dual creation of economic and social value.
It is a powerful tool for addressing societal challenges and harnessing an organization’s resources, skills, and innovation to tackle these issues. The framework encourages companies to redefine their purpose to include generating "shared value," thereby aligning their economic success with societal benefits. This includes strategies that seek to improve employee welfare, community support, and overall societal health.
The Shared Value Initiative (SVI) has been instrumental in promoting this concept, fostering a greater understanding of how economic and social progress are intertwined. By adopting shared value practices, companies can create solutions to social problems, ensuring that their growth also contributes positively to the communities they impact. Ultimately, shared value represents an opportunity for businesses to thrive economically while fulfilling societal needs, reinforcing the idea that corporate success and social progress are interconnected.
📹 What Is Corporate Social Responsibility (CSR)? Business: Explained
Over the past several decades, business leaders have recognized that they have a responsibility to do more than simply maximize …
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More of this style, please. The country articles are cool for exploring specific subjects and reinforcing those ideas with specific case studies. But these in-depth articles on the basic terminology help a layperson like me understand what each position in the discourse is even referring to. Thanks for doing what you do!
What I would add to the problem of “economics is really hard to experiment on” is also that even if you get the law passed and study the results, there are so many other variables that economists can always plausibly argue that the results actualy does not support/disprove the hypothesis since they were caused by other aspects… Say you had an idea for new brilliant taxation scheme and got a country to pass these with effect since 1.1.2019 . You study it’s results now and obviously the country is very much not better then before, but odds are it has more to do with covid then your taxation scheme…
I understand you needed to prioritize certain information, but I think it would have been great to point out why Keynes and Hayek disagreed soo much. For Hayek, the entire reason that the business cycle of ups and downs existed in the first place was because the state intervened to control currency and its ease of access (federal interest rates), which lead to systemic malinvestment. Keynes looked at the business cycle as it was and proposed a solution to the question of how to minimize the symptoms of that intervention, but the Austrians largely felt he was ignoring the root causes of the the problem and proposing a bandaid solution that would leave us worse off in the long run.
0:00: 📚 Economics is a complex social science with no definitive solution, leading to disagreements among practitioners. 4:28: 📚 The classical school of economics, led by Adam Smith, emerged in the 18th century and challenged the flawed mercantilist system, focusing on increasing the wealth of nations through mass creation of wealth. 7:27: 💰 The early philosophers and economists believed in the importance of an optimal distribution of wealth and division of labor for economic growth. 11:29: 📚 The Austrian School of Economics challenged classical economics by introducing the theory of marginal utility. 14:11: 📚 The Austrian School of economics emphasizes the importance of subjective value and rational consumer decision-making. 17:26: 💡 Keynesian economics introduced countercyclical fiscal policy to smooth out the business cycle and manage economic affairs. 21:10: 📚 Economists have different opinions and approaches, but they all work towards solving the central economic problem and agree on the importance of investing in the future. Recap by Tammy AI
Kudos, to you. As I’m weird, I’m currently perusal your website for entertainment whilst on holidays lol! I’ve also recommended your website to my eldest, who recently completed an undergraduate degree in public health and is doing her Masters next year. In this era of globalisation, I believe all the social sciences are interlinked… your website is very accessible to those without a background in economic theory. And compulsive viewing. Live long and prosper!
I enjoy your articles. Probably mostly because I enjoy your accent and enunciation so much, but also believe I learn things from you. I’ve read a lot of the comments and I’m disappointed that no one criticized your talking about Adam Smith’s pin making breakdown, while illustrating it with articles of needles.
Just a commentary. In the marginal revolution there were two visions: Carl Menger (Founder of Austrian School) and Walras & Jevons. Menger’s explanations didn’t use math formulas, didn’t start with idea of “Markets in equilibrium”, didn’t think of economics as something static, didn’t think as individuals to be rationally perfect, etc. Don’t mix marginals schools.
I think there’s another reason that wasn’t mentioned in the article: economics is a relatively young science. It’s been only 250 years since Wealth of Nations. For all the comparisons to physics that scholars like to make, physics has been studied in one form or another for more than 2000 years, going back to the first astronomers studying the regularity of the planets’ and stars’ movements. Even then, there were enormous disagreements about fundamentals for hundreds of years. To expect a similar sort of consensus from economics is silly, despite the relative ease with which information is transmitted since its inception. Econ is going to achieve similar levels of understanding and consensus, but it will take time.
Just listened to the President of Argentina‘s explanation of how he turned around his economy with an Austrian economics school of thought. Fascinating listen and I would like for you to please make a article on his comments and the available statistics. (currently a business administration undergrad student interested in getting my masters in business)
I’m sure articles will eventually be made about this on your website but I’d love to see you take on the neoclassical, heterodox, and Marxist schools of economics. Especially talking about the socialist calculation debate in the context of data analytics would be fun EDIT: Marxism vs laissez-faire might address these concepts so I’m pumped!
The criticism levied at the Austrians that their theories are not “falsifiable” and that the Austrian school is more like philosophy is correct, but not really a criticism. No economic theory is falsifiable because you can’t isolate variables properly in an economy. Even if you pass a policy to test a theory, you can’t really isolate it’s effects. That’s my opinion, at least, as someone with a background in “harder” science.
17:12 very strange that they would label austrian economics as ”philosophy” since it’s more about ”Psychology” which in many schools is still part of philosophy, the argument of austrian economics lacking verifiable data is somewhat silly, since all models created by economics is about Psychology of choice, resources and distribution of goods and services, in this way Austrian economics is more laissez faire than keynsian economics, where as Keynsian are almost authoritarian and corporatist in an attempt to quantify all economic data to it’s models, merely having more data does not mean your analisis or superiority is somehow proven, in fact we’ve seen and endured the problems with keynsian economics for some time now, with the accumulation of debt, where as the invention of crypto currencies and other new forms of economic development shows that this debt based system of keynsian economics does not work long term, it collapses and merely borrows more money, creates more corruption, more government power to the point that we have protectionists and open socialist and communists claiming to want to abolish capitalism. I know this website is honest and does good work and I think they are trying to represent both economic systems as best they can but I realy can’t stand keynsian economics. but if what I wrote her comes across as arrogant, ignorant, austrian school, economics fanboyism, I would like to hear from you why that is and why keynsian is beter compared to austrian school, thank you for your time.
1:54 the good news is that a lot of professionals are starting to realize that just because economics is hard to experiment with, does not mean there is no value in it. I mean take a look at the 2019 Economics Nobel Prize winners, who won it because of their experimental approach regarding global poverty. Will economic experiments ever be as concrete as a physics experiment? Of course not, because physics will always respond exactly the same way if you set up identical conditions, but while there is a lot more ambiguity to economics, it is still to our benefit to take experimental approaches when practical. It might not be able to 100% prove something, but it can give some insight to how people respond to new economic strategies.
Thank you EE for such a great article! However, I have a small in objection to do. The true founders of economics where the Spanish scholastic. Francisco de Victoria and other members of the University of Salamanca were not economist as such, but were led to economic reasoning as a way of explaining the world around them. They were at least as pro-free market as the Scottish tradition come to be centrifuges later. Plus, their rhetorical foundation was even more solid. They anticipated the theories of value and price of the “marginalists” of late-nineteenth-century Austria. Sorry but as a Spaniard, I couldn’t keep it to myself. 😬
I firmly believe that counteracting the natural cycle of economics is the worst thing we could have ever done. It’s created bigger crashes, prevented new growth by protecting the old businesses that should have failed, created megacorperations and all their evils, and is pushing the world off the cliff at the end of “infinite growth”. It’s also the root cause of inflation outstripping income, the housing crisis, and generational wealth inequality.
Austrian>Keynesian. The inflation we are experiencing now is a direct result of using Keynesian philosophy to “fix” the recession caused by government overaction to Covid. Countries like the USA are recovering faster because many states chose to not overreact and destroy their own economies. Australia on the other hand has a long fight left to overcome their governments self-immolation of their economy. I’d say it is hard to tell if application of Keynesian philosophies has actually ever helped anything.
If Keynesian economics basically enabled the government to spend more money (by inflating the currency), and we know the government funds our colleges and student loans, what economic model do you think academics are going to support when they are looking for government funding for their college programs?
Consumers aren’t perfectly rational. True. The government needs to step in. The problem with that is that the government (at least when it comes to democracies) is mainly controlled by consumers. The question then is something like “Do people make more rational decisions when engaging in the market system or the democratic system?” I think the answer is that people make more rational decisions when they engage in the market system because they feel the pain of spending their own money poorly whereas I don’t think that they feel the pain of spending a part of their but mostly everyone elses money as much, therefor they are less likely to learn from their mistakes.
Of course, my gift is to refine things. Your depiction of Classical and Austrian is excellent. You omit the fundamental question that drove their respective, become collective, investigations. Namely, “What is the source of value?” The Mercantilists believed it was gold as you said, and/or whatever could be traded for gold because conversely, gold could be traded for anything, duh. For your reasons cited, Adam Smith et al realized nope, it wasn’t gold but labor (your depiction of “production”), or the turning of useless raw materials into useful stuff. A log is useless whereas lumber is useful, therefor labor is the pixie dust that makes something “valuable.” The trouble was the uneven distribution of just how useful/valuable a given thing could be across diverse populations. The quandary was summed up by the infamous water diamond paradox. How can the most useful thing to humans, water, be so cheap while the most useless thing (at the time), diamonds, be so expensive? How can diamonds be more “valuable” than water? As you say, the Austrians stumbled upon the idea of “utility,” which today means “usefulness”, but back then had a broader meaning of “serves your desires”. Utility explained how the same object, like a porcelain figurine of a dog, could be valued highly by one person and absolutely worthless to another person. This was their “discovery” of the “individual”, of the power of individual wants and needs. It was the cap stone principle in the collection of broad sweeping changes called The Reformation; the transition from the idea that the individual’s purpose is to serve/maximize the group to the idea that the group’s purpose is to facilitate the potential of the individual.
There’s a very good reason why hard science says “you can’t sit with us!” to the social sciences. Remember, hard science is repeatable, measurable, quantifiable. Soft science is based on empirical data, data that can, and does, change. I think we could all benefit from drawing a more firm line between hard science and the social sciences
That very phrase brings some hugely impactful assumptions though, “How to satisfy unlimited demand with limited resources”. Most of all it equates all demand, like my demand for article games and starving persons demand for food. Has demand never been put in second priority after the actually limited needs, in economic theory? Can you not make a market-system that makes sure everybodies needs are satisfied before the demands(wants)? (yehyeh needs are subjective, but to a point. Everyone needs food and housing.)
Thank you! This is a very good and simple overview of economics. By the way: I don`t see a real contradiction between Austrians and Keynesians as long as both stick to their specific aspect of economics. Austrians have the perfect explanation for how value is defined (namely by the individual consumer). Their field is micro economics. Keynsians are macro-economists. Till now they claim to have (and probably do have) the best recipes how to handle boom and bust cycles. If during an economic downturn the government would pay workers to dig useless holes that would of course be a waste of money but paying workers instead to build necessary public infrastructure (which the market cannot provide anyway) for example would be a perfectly sensible way to avoid or at least dampen a recession.
Morally certainly factors in. For example the classical and Austrian school gets critisized for not doing enough to even out inequality while Keynesianism has done some bizarre things like burning food during a food shortage to boost prices and claim wars are good for the economy etc. There was no mention of this but Austrian school proponents claim that the boom and bust cycle is actually made worse by Keynesianism since it bails out the companies that would have gone under for them to be a bigger problem in the future and low interest rates and printing money leads to the boom and the inevitable bust.
“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. “
Austrian school: Consumers are smart enough to decide what they need, we have to focus on efficiency not flattening the cycles. Keynesian school: Consumers are too dump to decide what they need, we have to tax them and make state cool down the economy. Classical school: dOeSn’T maTteR, jUsT mAkE mORe gOOdS.
It’s the government intervention that causes such radical economical cycles. Distorting the market signs like interest (price of money) they make entrepreneurs and people in general take loans and invest when they shouldn’t. When the reality of the market imposes itself it causes a big crash. It would be best to just let economy be. BUT as printing and spending money is the primary work of politics, they would never leave the economy in peace. It’s like asking for the wolf to leave the chickens be
Great article, I’ve been looking for a website like this for a long time. That being said, I think it’s incomplete. You stop the “Evolution of the economic science” On Keynesianism without any mention not so over to the flaws that Economist from Uchicago pointed out and demonstrated decades later with contributions to Economy that earned them the Nobel Prize(Von Hayek, Coopsman, Simon and Friedman). I would really like a third part of this series of articles.
“Because economics is a science” Well there is a belief that economic magicians that push and pull levers to create beneficial outcomes. Human intervention of economics is not a question of if, but when it will fail. An economist is like a witch doctor: how can I earn a living without being actually productive.
One small correction, it’s not Adam Smith who invented economics, in India during the Maurya Empire in 322 BC, A man called Chanakya ( he was King’s right hand man and the brains behind the rise of Maurya Empire), already made an entire book about administration called Arthashastra, in that book he very specifically mentioned about what is economy and how to manage it and it was theoretical very close to the Austrian model of economics.
something that kind of gets me perusal this is that “the economy” is essentially a completely man-made construct, but the average person has almost no idea how it operates, even at a basic nuts and bolts level, and even people who study it for a living can’t reach anything close to a universal consensus about how to manage it. it seems like something as unnatural (for lack of a better term) as economics or organised government should be relatively easy to study, understand/explain and reach some kind of academic consensus around, but in reality it’s much, much harder than with most other sciences.
I can find not reference attributed to Kant having writing or saying, “all crafts, trades and arts have profited from the division of labour…” but, I can fin Adam Smith’s quote from Wealth f Nations where he wrote, “The greatest improvements in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed or applied, have been the effects of division of labour.” which I believe is saying pretty much the same thing.
The Objective Economics of Verne Atrill and the Reconstruction of Economics by Kenneth Boulding is compatible with classical economics, Austrian Economics, and Keynesian Economics. Both Verne Atrill and Kenneth Boulding base their economics on the balance sheet which most economists ignore. Verne Atrill was a physicist who got a PhD in economics at the London School of Economics who wrote the book “How All Economies Work”. He is to economics what Albert Einstein is to physics, but people don’t know this.
The producers of this article need to re-study the theories advocated by the Austrian school. Here are three examples: First, the judgment of marginal utility happens and an instant in time. The utility of a good never drops below zero. Other goods simply have more utility at the point of exchange. Second, just because you disagree with the judgments of consumers does not make them irrational. They simply have a different set of preferences than you. (Refer to Mises.) Third, the subjective value theory applies to human systems that have the capability to learn. The complex adaptive nature of humans makes conducting repeatable experiments impossible. Sound reason (e.g., the action axiom) provides the only tool for understanding human behavior. When a person studies a methodology, he must not dismiss it because he doesn’t understand it. Misunderstanding has plagued Paul Krugman’s criticism of Austrian economics for decades.
By 2100 the entire economy will be run by memes. A cup of coffee will cost 2 rickrolls and half of chocolate rain. Brokers will trade in bonds backed by Hating Sand Cause It Gets Everywhere. Interest rates will be in units of Forgetting About The Iron Fleet. And the economy will use a new fiat currency called “It Just Works”.
Keynes was wrong in that that he thought government officials had enough economic knowledge and the right interests to control the economy good enough for it to cause more good than harm. Politicians have special interests + many of them are not smart enough to even realize what they are really doing. Keynes’s theory would work only with perfect government officials. Yes, economics has cycles, but never underestimate caused harm by government mistakes. So I’m more a believer in the Austrian school.
I’m pretty new to economics but I really enjoy it and I think I’m going to switch my major to finance/economics next year. But just perusal this article it seems pretty clear to me that Austrian is the best of the three. Am I wrong? Would love to hear a rational explanation from someone more knowledgeable than myself if you disagree.
The problem(s) with the applications of Keynes’s theories is that it relies on the flawed judgment of men. It’s easy to advocate for deficit spending to stimulate an economy during a recession. When, if ever, have those same politicians advocated for repaying the debt incurred during deficit spending? It’s Keynes’s theories that are responsible for America’s 31 Trillion dollars of national debt.
4:46 – That is a rather anglo-centric statement. Adam Smith did not “give birth to economics”, something which sounds particulary jarring in a article explaining the Austrian School of economics, considering how Hayek, for instance, in his Nobel Prize acceptance speech, mentioned “those remarkable anticipators of modern economics, the Spanish schoolmen of the sixteenth century”.
One insight of Von Mies that is seldom mentioned but seems especially relevant these days is the notion that the market is a method of decentralising decision making to the person or persons with the information needed to come to the best decision. This calls for regulation to ensure that decision makers have the information they need. Also some decisions are in fact best made at a higher central level and not by the market.
Modern Keynsian economics holds that debt is money. Leading to a fiat currency system that will eventually collapse and be replaced by another fiat currency system. And so the cycle goes on. This suits the Central Banks who always profit and gives them control over governments and nation states. When applied to a global economy, things start to take on a different view and governance becomes more totalitarian.
Great article, but I disagree with the assessment of the Austrian School’s flaws. Part of its whole thesis is that economics is not and should not be a science. It IS a philosophy. This is not a flaw of the Austrians; it is a strength. The whole point is that the economy is organic and consumers are sometimes irrational. Moreover, the Austrian School actually does have frameworks that describe the economy: theories of the trade cycle are the most prominent. Those theories can be proven through empirical research, and they have been proven over the last century. F.A. Hayek was right about artificially low interest rates causing mal-investment and thus economic bubbles. The most recent bubble just popped, with a little help from the government, mind you. Check this out for more: mises.org/wire/debunking-seven-common-criticisms-austrian-economics.
The first book of economics written by Karl Menger didn’t have a single formula in it, he sent it to different famous economists of his time and they all laughed at him. Years later all the predictions of the austrians like Von Mises and Hayek came true, whereas the classical economists kept applying formulas and estimations that very rarely end up being right, just as like modern Keynesians. Japan has tried all the tricks of the book of government intervention in economics and the result is the biggest national debt in the world by far, in Europe we are following their path. Government intervention only delays and enhances crisis, which are inevitable in capitalism, however we can try to achieve a more flexible economy that can adapt quickly to the demand crisis and develop a more saving focused culture to endure these periodical decreases in demand thus in jobs. Keynesianism in my opinion is a reassuring lie.
10:40 the emphasis here is totally wrong. The speaker is a socialistic Keynsian, so he misses the point. The failure of Classical economics is not the assumption of selfishness and that selfishness is good. The emphasis SHOULD be on the actual fault, logical. Individuals are not logical. They do act selfishly, and logically should, but the do NOT always act LOGICALLY. If an individual is logically selfish, they would conclude that the overwhelming majority of decisions they need to make within a SOCIETY would be for the benefit of themselves AND those around them. The logical, selfish decision in most cases is the win-win situation to the benefit of all parties involve. The win-win decision benefits the individual the most in their lifetime within SOCIETY. Maximizing short-term gains at the expense of others is illogical in that in a SOCIETY your reputation follows you. You effectively damage your own future for a short-term gain.
The problem with problems is that solving is required – apparently. The case of resources running out has one of the easier solutions – raise prices! Not the producers’, but the consumers’ perceived value drives volumes – which is why, legally, the producer offers the product and the consumer accepts it. Our propensity to seek an Aristotelian ‘balance’ in all things, coupled with creativity and inventiveness, will more likely be found in ‘new’ and/or ‘improved’ products and not in empty shelves. It’s after all, not the shovel one buys but the hole it digs.
taken from an wikipedia article on the austrian economist hans-hermann-hoppe: “Following a 4 March 2004, lecture on time preference at the University of Nevada, Las Vegas (UNLV), a student complained that Hoppe created a hostile classroom environment by stating that homosexuals tend to be more shortsighted than heterosexuals in their ability to save money and plan (economically) for the future, in part because they tend not to have children. Hoppe also suggested that John Maynard Keynes’s homosexuality might explain his economic views, with which Hoppe disagreed” that’s one way to discredit an economic discipline i guess, lol.
Economics not only talks about the trade-offs between different goods and services when it comes decision making but also about trade-offs between ideas and who propagates those ideas. In order to understand them, we need to agree on two assumptions: 1. Human beings act out of self-interest. 2. Human beings respond to incentives. Keeping both these assumptions in mind, we need to decide who should make economic decisions to solve whatever problems economies face every now and then. Should it be government officials or bureaucrats who never pay any price for making those decisions or individuals who participate in the free market and pay the consequences for making irrational decisions because the impact of their decisions is balanced by decisions made by others. So in the latter case, the free market determines checks and balances that make people pay for their misdeed and mistakes rather than the former case where government officials, who make decisions for others, never bear the brunt of it. This is the biggest trade-off. The second trade-off is between economists and individuals. Should economists, who don’t pay any price if they are wrong or whose credibility to say anything is questionable because economists are not certified by any institute (like chartered accountants are), be allowed to decide how economies ought to work rather than allow individuals to decide how to run their own lives is also something we should think about.
On the pin example… My brother disagreed, in high school, with this concept proposed by his economics professor. He went home, made a pin in half an hour and presented the pin to the professor, along with the explaination of how it was done, on a roll of toilet paper. The professor eventually lost the pin, but kept the roll of toilet paper for years afterwards. (I witnessed the making of the pin. In the half hour he broke the first one he made, and succeeded with the second.)
This is literally Keynesian propaganda Imagine actually thinking Keynesian economics is pro long term planning. Also economics isn’t a hard science, and it is a folly to think it is. It is arrogant to think that the economy is a machine for galaxy brained central bankers to fix and tinker with. Your claim that Austrians think all consumers are perfectly rational is wrong. It’s the opposite, you cannot perfectly understand the economy, because there is no such thing as the economy, it’s all just people doing things, with their own needs and desires. I find it disingenuous when you say that the keynsians are the ones that recognise that people aren’t rational and Austrians think everybody is. It’s the opposite, Keynsians think it’s a hard science where every person is less of a variable and more of a constant to fit into their models. When krugman (who has been wrong on almost everything he’s ever said, he’s literally the worst modern economist) said Austrian economics is less economics and more philosophy, that isn’t an insult. Austrians think economics shouldn’t be seen as a science. Keynsians are the ones that cant get a grip on how humans actually act. They make their models and think that “if just everyone acted like I want them to act, then this would work”. “If everyone in government would purposefully throttle the economy in good times which would doom their chances of re-election, then we could let the central banks run rampant in times of crises!!!!”. I mean I wouldn’t fault you guys if you came up with the idea, saw through trial and error that it clearly doesn’t work, and then gave it up.
Without irony, my man Mr. Kant was not actually talking about craftsman as much as about areas of philosophy. But he used the self evident example of craftsmen as an archetype to make his point. It’s so cool that you used a passage that I remember from University. That rarely happens. Edit: As a philosophy major, I take exception to the use of “philosophy” as a pejorative. Shame on you…
The main reason for so many disagreements is moral subjectivity, “is it worth reducing economic freedom in order to reduce poverty??” some people would say “of course” others would say “of course not”, and there is no way to solve the debate. The same situation can happen in other fields, but in economy and any other social science is more frequent because they are talking about humans so there are moral dilemmas everywhere.
As a physicist and an economist I can assure you that economics/finance is a pseudo-science, not a hard science like physics. Both run on statistics and probabilities but one works under almost all conditions in almost all places, whereas the other does not. In physics there are fundamental laws that work everywhere except at the most extremes – i.e. at the very smallest scales (quantum mechanics) and the very largest (supermassive black holes). We still have lots of work to do in physics to a theory of everything but our theories are accurate to 10 or more decimal places. There are no such fundamental laws in economics/finance and the laws that do exist are temporal and spatial
your estimation of what rational means in the Austrian framework is not praxeologically coherent. Rational in the misesian sense means purposive not efficacious, hence the notion that action is self-interested, that does not mean it is omnipotent. If you had bothered to read any foundational literature from the Austrian school like von Mises’s Human Action, you would well know that rational does not imply correct or mechanically sound, rather it means that action is a means to ends process, and therefore means and ends are graded based on ordinal prioritization. Means graded based on assumed efficacy in achieving an end and ends sought after based on the urgency with which they are perceived by the actor acting versus other potential ends.
7:00 – It wasn’t quite zero-sum even then because incremental advances in agriculture and tool-making were being made, marshland was being turned to farms, and seafaring merchants were making exotic goods available at cheaper prices than before. Governments then saw it that way because they were glorified protection rackets. Nations breaking out of this mentality caused the surge in technological growth, rather than that surge causing the shift in mentality IMO.
EE, what are your thoughts on 30 year mortgage loans? Do you think the Sydney and Melbourne property prices are inflated and would benefit if we moved toward stricter lending conditions by reducing them from 30 years to 20 years over a 10 year period and requiring 30%-40% deposit loans for borrowers to avoid mortgage lender insurance? This will surely mean that mortgage stress will be reduced and the property growth rate will stagnate allowing incomes to catch up. Far too many people have made money on property in the past 15 years which needs to be rewound in some form. Property land values should not be where people make money unless they have developed and added value to the land/property. This would also mean that there would be higher disposable income and add more money into the economy. Thoughts?
Keynes was absolutely wrong about many things, most notably about inflation and recessions. Keynes considered the simultaneous occurrence of recession and inflation to be impossible, but this was of proven wrong by the stagflationary 1970s. Modern central bankers are also not Keynsian, they will not remove money from the economy to combat inflation. Most likely the currently brewing inflation will not be fought at all, if anything more money will be printed and interest rates kept extremely low.
When products became digital and immaterial, the economic question change, don’t you think? That lead to the actual big problem that is our financial and service products are mostly infinite and material resources and the recycling ecosystems in our planet are finite and passed the limits of renewable equilibrium. The economist Herman Daily is remarkable to put that point into light. Could you share your thoughts on sustainable economy?
Hi! I had a question about the criticisms of the Austrian school, and I wanted to see if someone with actual economics knowledge (unlike me) could explain why I’m wrong. Wouldn’t the theory of subjective value/marginal utility be falsified by mathematically showing that consumers actually buy significantly more than what they actually need and that the consumer will buy something regardless of its utility? I think there’s a solid bit of proof against this with the idea of “buy one, get one half off” deals where people would not ordinarily buy two of the same thing, but the subjective value of the second kettle is greater than half of the value of the first kettle. I suppose I don’t really understand how it’s non-falsifiable (unless you mean it’s non-falsifiable through a priori means, which I don’t think applies to any school of economic thought).
So I’m curious what evidence Keynes and co provided that economic highs and lows were indeed cyclical, and not just cyclical but entirely disconnected from policy that predate his hypothesis. For example the banking crisis of 1908 leading to the Federal Reserve act in 1913 and then ten years later a staggering stock market crash, in other words what evidence does he provide these outcomes are the result of inevitable cycles as opposed to the outcome and effect of previous policy decisions or otherwise intelligible market mechanics?
When it comes to Austrian economics and it’s theory being un-falsefiable, yes I supose they are, however isn’t it possible to analyse history and compare relatively comparable countries to each-other and compare their development. I’m under no illusion that it’s a walk in the park, but as you said in the beginning of your article: the reason economics won’t agree is because it’s very difficult to test. We simply have to try it out. When I was first introduced to Austrian Economics, while reading a book I was mindblown – not because it was new to me, but my ideas were verified. I remember thinking “Holy sh*t, it (The economic principal) is actually called something!”
Very interesting, although I don’t see how one can make a article on economic theory without talking about one of the most influential school of though in modern history, marxism. As well as Neoliberalism, obviously. I’m not a marxist at all, but one cannot deny the existence of marxist ideas and their importance in economics. Adams, Keynes and Hayek all built analysis within the framework of capitalism. But that framework itself was contested by other authors, in favor of corporatism or communism, for instance.
9:44, didn’t craftstmen and specially skilled people exist before the industrial revolution? What has the industrial revolution got to do with division of labour? Most ancient civilization like egyptians and mesopotamians had specialized workers and currency. Great article btw. Thoroughly enjoyed it. 😊
Even if you could test every hypothesis out on an economy it would be far less controlled than say a medicinal study, which for example has randomization of subjects, placebo controls, stratification of preexisting conditions… Also a medical study is reproduced thousands of times, rather than once, on a variety people establishing it’s validity in a variety of people with a variety of conditions. Because the economic study was only run once it would underpowered, and it’s likely that the results wouldn’t be reproducible. And because the economic study will be inherently fraught with confounders the validity of the results are threatened making any conclusion drawn from the study fairly weak or even meaningless.
Nothing here is necessarily incorrect but perception plays a part in which you see as most adopted by most economist today….in my experience, most economists wold reluctantly report to being with the Australian school if pressed to chose one system, while seeing Kaines as a man with a couple valuable contributions who remains more popular with politicians who wish to appear proactive with an electorate that condemns inaction than he has been with Economists since the stagflation seen in the 1970s. While my association is with University of Chicago likly skews my perspective, i would say the fact that JMK never won a Nobel prize, while Hayek was awarded a Nobel prize not only for research into business cycles but also by highlighting several of the cental planning failures advocated by JMK leading to the economic downturn seen in the late 70s
Given that most goverments are following Keynesian principles, this ressesion will bring to light how wrong things can go when a bunch of demagogues pretend to be wise enough to control the economy. So, hopefully we will have a free market society and a better future. We should be free, not controlled, and that includes the economy.
No, that is an absolute fallacy: Classical economics DOES NOT assume everyone is perfectly rational. In fact, it recognizes that a free market system CREATES rationality, even though the individual members are NOT consistently rational. The competition and market signals are metrics that communicate needs in a way that generates spontaneous order.
good content! I love your articles! Lots of people agree that we are in an economy based on constant increase of consumption of goods and services with limitless resources. However true is that resources are not limitless, and therefore this model is tending to collapse. However on the other hand many economist don’t take on account that even when resources have a limit, there is something that doesn’t, and that is the increase of innovation and productivity towards the use of those resources, meaning that we can do way more things, with less more resources over time, stretching the use of those limited resources beyond. From Nomandism to sedentarism to agriculture thru industrialization to information and use of internet. Each of these milestones in the human era has come with an explosion of productivity and redistribution of resources stretching them and making much more than we thought we would be able to before each period.
OP: otherwise known as the danger of categorical thinking. Eg: What is the Economist’s fullest definition of the human being? Understanding the complete needs of this highly complex ‘basic’ unit might be a clarifying moment. Hint: it will have nothing to do with religion. Natural processes have cobbled-together a pretty resilient unit that despite being one of the weakest creatures can regard itself as top dog; who is not a dog. From that base we can then try to understand what they need and what they need to care about for themselves and those they care about both now and in the future. aka Humanism. To focus the importance of understanding the broader picture bear in mind that this planet/solar system/galaxy are temporary. And H. sapiens has wasted millennia on lies and obfuscation. Eg: We could have moved our Space programmes to the moon by now. With massive subterranean, glass-enclosed (heat), self-sustaining communities of our best and brightest answering the real questions. Making those thing happen (sooner rather than later) is the point of an economy: because it serves humanity.
Just dropping it here. The criticism of the Austrian school is wrong, tho I know that’s what a lot of people say about it. Austrian school doesn’t assume an optimal decision made by rational people, that’s taken into account on the beggining of Mises’ Human Action. And using apriorisms doesn’t mean it’s not falsifiable, it just means you can’t use external data to do it because of the methodology employed. All you have to do is prove the premises are flawed and that would crumble everything in it. It’s like the Austrian school takes a pure math approach to solve problems while the others take the physics approach. I see no problem considering it a branch of philosophy tbh.
The very existence of the concept of “utility” and the admission (in the article) that people do — in fact — often want a limited (optimal) number of any given good or service throws the entire “unsolvable problem” hypothesis right out the window. There is not, in fact, unlimited demand. We now have not only individuals but also giant state retirement programs seeking to increase their investements in enterprises which rein themselves in via green & sustainable production policies. It’s clever, kitschy, and attention grabbing to promote such a Gordian Knot of a dilemma, but there is little support (other than naked pronouncement) for the bold assertion of said problem.
Is it possible that they are all right but limited by the circumstances that currently exist? I mean that in some situations one works best while in a another situation a different one works best. If my theory is right than governments would have to constantly be changing economic theory and policy in order to stabilize and maintain everything. For instance I wonder if Keynsian economics has run its usefulness out atm and perhaps we should change to a more mercantilist or classical theory for a while to stabilize things. Perhaps we should run all the theories in cycles depending on circumstances instead of running one for nearly 100 years.
Continuously lowering taxes because we assume it increases consumer spending and means the good times will be a lot more good for everyone assumes this money goes into the pockets of the 99%. If all of the money goes to the top then the little people have small good times and huge down times and the richest among us have big good times and almost no down times. The presumptions of arguments against Keynesianism and others are that the money will be circulating in the real economy and ignore the cantillon effect, the velocity of money and the effects of financialisation and monopolisation.
Thanks for the great article. I would however like to note that your commentary is a bit biased at times. Paul Krugman may dismiss the Austrian School of Economics (ASoE), but then again he said the internet would have no more impact on the world than the fax machine, so who cares? 🙂 It’s fair to say that simplicity is a property people enjoy about ASoE, but to be honest what you say about ASoE (non-falsifiability, etc) really applies to most of economics. As you rightly pointed out in the beginning of the article, you can do statistical analysis but not controlled experiments. This hinders economics immensely, and as someone with a background in mathematics and engineering, I’m honestly reluctant to call most of economics “scientific”. If you cannot do controlled experiments, it’s really hard to get anywhere. To give an example of why, think about this: steam engines and transistors were only invented once; such fundamental discoveries create huge biases in whichever statistical models one tries to construct, and it’s virtually impossible to compensate for such things. I would also strongly disagree that mathematical simplicity is a factor for attraction towards ASoE; mathematical complexity is only relevant when justified, otherwise it’s just intellectual wanking, really. I would also argue that there is very little “scientific” evidence that monetary policy practices defended by mainstream economists work at all.
About what you said about politicians implementing Keynesian economics when things are bad (stimulus, and reduction in taxes) but not doing the part of raising taxes when good times come to make the good times not so good! Why is the need to make Good times not so good, what problem is with good times?
4:41 this statement is absolutely untrue. The study of economics was embedded deeply in ancient thought, although it was generally not thought of as it is today outside of a few brief periods of price controls when the Roman Empire began to run their economy the way we do today, and thus licensing cartels took over the credible study of economics. Even in the Old Testament in Isaiah, it was well known that the bimetallic standard that had been developed 1200 years earlier and was a global standard weights and measure throughout the known world, Isaiah describes a hedonistic society that is disobedient of the natural law of god, which included the laws of economics… it was a simple given, you didn’t think about it in a term to try to manipulate economic forces because once you did the society rapidly collapses. “Your silver has become dross” in Isaiah refers to the practice of putting cheap base metals into silver coinage thus inflating the currency while temporarily giving those who controlled the creation of currency units more buying power for the purchase of purple dyes and purple silks to sell at stupid bubble prices to the occupying Roman Governors to send to Rome. Plato’s Republic is a dissertation less on the form of government most useful to the nation, and more about a government that allows economic forces to do what they will and to limit the ability of princes to attempt to manipulate that market which begins a process that repeats itself in which a nation goes into negative gdp, debt, and is subsequently swallowed up by a strong neighboring nation that did not manipulate its currency.
Classical economics would be fine if fewer people participated and succumbed to excess consumption.The high rate of material production has create so much excess that companies end up tossing perfectly good products into landfills. It’s bad enough that much of it is meant to fall apart, but now there is literally no place to put what failed to sell by a certain deadline. More people should practice homesteading and living partially off-grid.
But we now labour under, not Keynesian economics, but Reaganomics. They are similar except in 1 way. The Keynesian system taxes the rich because they are the only ones with anything to tax while Reaganomics taxes anyone else but the rich because the rich are the only ones that can afford to pay kick backs to the politicans who implement these systems.
The key-assumption of Keynesianism is that strong government is smarter than the market and that our economy is comprised of ‘national economies’. ‘Smoothing out’ economic cycles by having national governments on the steering wheel – simply said – has led us to the disastrous global debts of today. Next logical step: MMT, rationalizing away all such disturbances as bad conscience, magically making stealing our grand-grandkid’s future appear to be a good thing. Keynesianism and ‘rigorous mathematical proofs’ – what a cynical joke.
The problem with different thought of economics comes with the level of empathy of each economist and individual in our society. Some low emphatic individuals on ASPD spectrum will always value commodities and money more than humans. They will argue hard that without monetary reward a human has no desire for innovation which is a total rubbish, just because they are driven themselves on accumulation of wealth doesn’t mean everyone has placed such an extreme value on it. At the end of the day it’s the worker who is driving Capitalism and consumerism forward. All the capital in the world is just a worthless dust without human labor and consumer demand. I think Psychology and Neuroscience must play an integral role in Economics of Western Countries that are obsessed with greed and wealth accumulation.
No matter one’s personal political orientation, I thought the Marxist school of thought could have been included. It remains relevant today, in an era of increasing wealth accumulation, a rising feeling of alienation in the working classes, and disruption of the labour market through rapid technological innovation
Thanks for this introduction. Robert Zubrin said the biggest problem the human race faces is bad ideas. I would agree with him. To give an example from Immanuel Kant that “division of labour” is most efficient, and most politicians would rush off and create labour divisions ad infinitum like the good little case advocates they are. Of course they fail to take into account the negative side – the creation of dependencies. Look at how well that turned out for Germany! Look how Tesla understood this vulnerability and decided to make their own sub components rather than risk being sanctioned by their rivals. The point is that every endeavour should be fully examined PESTEL-wise, and since the majority of politicians are lawyers, it will seldom happen. Enter Trump
If there is one person most responsible for the decline of the West it is Keynes… Keynesian economics is just kicking the can down the road with inflation, and all the models fail to work.. Governments are also extremely bad at meddling with the market because they lack the necessary feedback, computational power and incentives.
Isn’t the main problem of keynesianism the one, that expectations influence economic actions in the presence? The classic example being, that I can expect higher taxes/lower transfers in the future, if my government is deficit spending now, and hence I should not spend everything now but save for the future, heavily reducing the impaact of counter-cyclical policies? Why didn’t you mention that? I figure, this is at least as big of a problem for keynesianism as politicians acting in their own self-interest
“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.” Incredible how Adam Smith understood, over 3 centuries ago, the necessity of fair wages and the ills of grotesquely vulgar disparities in income for the sustainability of any healthy society. Sadly, the past four decades have shown how little humanity has grasped of the fundamentals of economics. We have indeed reached a point with a “swelling peasant class holding up a tiny nobility”. It would appear that company executives, lobbyists and politicians have forgotten the fundamental mechanics of that now-elusive invisible hand. I fear that without a significant paradigm shift, at the current rate, most societies around the world will collapse upon themselves in the coming decade.
Here’s an argument I have against the keynesian school. During the good times, you have high resources. During the bad times you have low resources. The idea I get from this article is that according to keynes, the government should decrease resource consumption during the good times, and increase resource consumption during the bad times. The problem here is that when your resources are low, you should also be consuming less of them. If the government achieves the goal of higher resource consumption, it drives the resources of the nation into the ground. The other issue is that the government is very bad at spending money, and most of it will probably go to crony corporates during the bad times when spending increases, so it’ll sharpen the K shape. I’m not against rich corporations, but the government should not do things that give them an advantage over small businesses.
There were “booms” “and “busts” for centuries.They always resolved if not “managed ” by governments and their genius central planners.The “great depression ” however was almost entirely caused by central planning when the federal reserve contracted the money supply in a garden variety down turn that resulted from irrational misallocation of resources due to speculative adventurism.It’s pretty obvious leaving economic decisions to a hand full of experts almost always results in misallocation of resources and irrational speculation.Fine tuning the economy by government interference is simply the arrogance of a few,seldom personally affected,leading to the destruction of economic activity of the majority.
The title does not do justice to the gold delivered in the article. Especially the section on counter-cyclical fiscal policy shines light that “other factors staying constant, having an overarching lever that controls or rather helps in fine-tuning consumer demand and credit supply (i.e by changing the interest rates), is actually a necessity for the economy : by making busts and booms less severe, people could wrap their heads around the concept of long term growth rather than all doom and gloom during a recession.
Label it whichever way you want but… It seems to be that the way we structure society is based mainly on Availability of Resources, the Scientific Method, Competition Vs Cooperation and Human Behaviour (not Human Nature as that concept doesn’t seem to exist) Availability of Resources – We can only work with existing available resources (water, energy, air, fossils fuels etc etc) Scientific Method – Is the best problem-solving method we humans ever had Competition Vs Cooperation – one directs humans more towards monopolies, conflicts, resource hoarding etc – the other directs humans more towards sharing, peaceful-like behaviour, greater advancements in scientific method, less human generated problems in the long run Human Behaviour – It is highly malleable, can be conditioned (for better of for worse) – Not set in stone (not natural neither unchangeable), otherwise we would still be living in caves Now that being said, when did humans have a such a society? And we wonder what the root of many of our problems are…