lecture 7 (markets are great/markets are not so great) Flashcards
what is the market
a market is a decentralized order where people freely exchange products and services, the production, distribution and consumption of which happens on the basis of prices
It follows from generally accepted belief that we currently live in a capitalist free-market economy (what does this mean)
supply and demand establish prices and trade relations without intervention by government
capitalist economic action
a constant, endless rational, research of gain
The pursuit of profit based on peaceful occasions of exchange
the rational employment of capital (means of production) to obtain more capital;
Profitability of the economic enterprise, calculating the rate of profit confronting final balance with teh initial one, i.e. the calculus of capital
why market ethics
businesses operate in the market, i.e. the free market capitalist society
Decisions within business are directly tied to the functioning of the market (ex: fairness in hiring)
If no regulation, CSR is left wholly tot he wishes of the business decision makers
why would you live in a capitalist free market (freedom argument)
until 18th century: economy mostly meant agricultural economy dominated by feudal landlords
vertical, hierarchical, static society: landlord/aristocracy dominated over servants/peasents who worked for them
–> human beings act primarily out of self interest
self interest = freedom
Enlightenment: reason + liberte, egalite, fraternite
alternatively: in the late 18th and early 19th centuries, an intellectual movement developed that went under the name of liberalism. This development, which was a reaction against hte authoritarian elements in the prior society, emphasized freedom as the ultimate goal and the individual as the ultimate entity in the society. It supported laissez faire at home as a means of reducing the role of the state in economic affairs and thereby avoiding interfering with the individual
why would you live in a capitalist free market (pulic good argument)
before the 18th century, the idea was that private good and public good were in contrast
The more you get for yourself, the more you take from the public
18th century: revolutionary change of perspective
Pursuing your private good, you contribute to the public good
Invisible hand mechanism: public good is the unintended consequence of individual pursuit of their own good
Adam smith Public good argument
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 own interest. We address ourselves, not to their humanity but to their self-love and never talk to them of our own necessities but of their advantages
adam smith public good argument - invisible hand
the merchang “is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention… i have never known much good done by those who affected to trade for public good. It is an affectation, indeed, not very common among merchants, and very few words need to be employed in dissuading them from it… by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it
why would i want to live in a free capitalis tmarket (efficiency argument)
Markets are often praised for their efficiency. Markets provide incentives to increase productivity and cut unnecessary costs
Given diversity of talents, each market agent will benefit from “specialization of function and division of labor) and engage in free trade
No waste of energies and resources (as in feudalism)
why would i want to live in a free capitalist market (knowledge argument)
Hayek’s knowledge argument highlights the fundamental advantage of market economies: their ability to harness and coordinate dispersed knowledge through the price mechanism. This makes markets more adept at resource allocation and innovation compared to centrally planned economies. By allowing individuals to act on their local knowledge, markets achieve a level of efficiency and responsiveness that centralized planning cannot match.
why would you live in a capitalist free market (utility - ophelimity argument)
The utility-ophelimity argument for markets emphasizes the role of individual preferences and subjective value in driving economic efficiency. By allowing individuals to act based on their own preferences and knowledge, markets facilitate the efficient allocation of resources, promote innovation, and enhance overall welfare. Markets, through the price mechanism, aggregate information and ensure that resources are directed towards their most valued uses, leading to outcomes that are Pareto efficient and maximizing utility and ophelimity.
