Midterm Flashcards
Utopian Socialism
presentation of visions and outlines for future idealistic classless society without a particular political theory of how the economic system works. Just against horrible outcomes. Universal reason and distributive justice.
Distributive justice is the delinking of production from the distribution of income.
Economic “System”
Refers to a set of institutions (norms and codified rules) that define property rights, modes of decision-making, and methods of implementation, thereby determining the level and distribution of production, income, investment, and consumption.
An economic system, in other words, is a set of interlocking institutions (rules) that balance competition, cooperation, and accountability.
Market (capitalist) Economy
Capitalism is a widely adopted economic system in which there is private ownership of the means of production.
Modern capitalist systems usually include a market-oriented economy
Moral (social) economy
way of viewing economy activity in terms of its moral, rather than material aspects. This concept was introduced by the Marxist social historian E. P. Thompson. He referred to a specific class struggle in a specific era, seen from the perspective of the poorest citizens – the crowd
Varieties: Capitalism (liberal and state) v. Socialism (Stalinist and market)
Scientific Socialism
Society may be ranked by two intertwined but ranked levels:
1) super structure: culture and political sphere
2) sub structure: economic sphere
The economy is, in turn, theorized as having two dimensions
- relations of production (classes) : who owns what and who controls what
- relations in production(organization) : how wealth is produced, and how the economic surplus is distributed
to mean a society ruled by a scientific government, i.e., one whose sovereignty rests upon reason, rather than sheer will
Engels used the term “scientific socialism” to describe Marx’s social-political-economic theory.
The term scientific socialism was used by Friedrich Engels to characterize the doctrines that he and Karl Marx developed and distinguish them from other socialist doctrines, which he dismissed as utopian socialism
Scientific socialism was introduced to Russia in the late ninenteenth century. After the Bolshevik victory in the civil war, scientific socialism became part of the official ideology of the USSR.
Rational Choice
Rational choice” (optimization) by individuals, groups (classes), or organizations that are:
Self-interested, amoral , and calculating (homo economicus—rational fool?)
Social animal (a mental model of enlightened self-interest, altruism, and other social norms)
Constrained Optimization.
embeddedness
Polanyi analyzed and explained the emergence of capitalism
polanyi contended that prior to the emrgence of capitalism the relationship between the economy and society was embedded
the economy was subject to social limitations on its functioning, social traditions of redistribution reciprocity and gift giving limited the scope of market ness in society and markets themselves played a limited role in society more broadly
Double Movement
society is constantly moving back and forth disimbedding and reimbedding expanding protections against the market and withdrawing these protections over time and then reinstating regulations/ protections as the market fails
To protect themselves, societies produce a dialectical “double movement.” Market encroachment (action) elicits counter-movements (opposite reaction)—government regulations, social protections, revolts, and worker unions.
historic materialism
the motive force of history is class struggle over production and distribution and social classes coexist in a world of contradictions
the motive of history is what?
class struggle due to materialism
market and liberty are what
Market (material necessity) and Liberty (social and political freedom) coexist contradictorily
The Great Transformation’s verdict:
Prosperity came with unacceptable social degradation and thereby inviting pushback (1848, Great Depression, Revolutions) by the marginalized (proletariat, small producers).
John M. Keynes:
Rejects the self-regulating market of the Classicals in explaining the breakdown of markets during the Great depression. Keynes’ counter-cyclical and counter-intuitive economic theories, advocating for sensible government intervention to stabilize the economy, remain potent
John Rawls:
Rawls’ theory of distributive justice based on the notion of the “original position,” or veil of ignorance, emphasizes the importance of a Polanyian social contract with equal market and pre-market opportunities.
Every economic system has three dimensions:
Competition (horizontal interdependence)
Command (vertical interdependence)
Change (motive force, and time)
Well-designed economic systems are
Efficient and productive
Fair (equal opportunity + reasonable outcome)
Keynesian Gentle Hand:
This disorderly individual action leads to a coordination failure that the market cannot fix on its own—great depressions
Smithian Invisible Hand:
Individuals pursue what is good for them; a good system ensures that what individuals do is also what society wants.
the motive forces of economic actors are
Profits, or
Social service, self-employment or self-consumption
Rule-makers and rule-enforcers jointly determine:
what economies produce,
how they produce, and
how incomes are then distributed.
comparative advantage
Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners. It is used to explain why companies, countries, or individuals can benefit from trade.
Principal-agent problem (Agency Problem)
There can be a divide between the stockholders and the people who have been delegated to manage a corporation. The Stockholders tend to be disconnected from the actual carrying out of business on a daily basis and they are separated from the agents who are executives in charge of running the corporation. These executives can take advantage of the principal by straying from the best interest of the stockholders.
Natural Affinity Thesis (Kornai)
The Kornai thesis: A “natural affinity” exists between ownership and control
A strong long-term affinity exists between ownership form and allocation mechanism:
Private Ownership -> Market-driven
(Capitalism—meritocratic and liberal or authoritarian and statist)
Social Ownership -> Community-driven
(Cooperativism—owner-managed or labor- managed)
State Ownership State-driven (Socialism—Stalinist or Marketist)
corporation
Limited liability company with perpetual existence and its own legal entity, dual mandate to profit and the common good
Fordism
Term coined to mean a corporate model focues on mass production, standardization, and mass production
Monopoly
A single firm takes control of an entire market and stifles incentives and blocks entry/exit to prevent competition from existing
Fusion: Inclusionary v. exclusionary pol/econ systems
In “Why Nations Fail” by Robinson and Acemoglu they explore how the reason behind poor and rich countries is the political institutions in place within countries, Economic institutions are those that control economic transfers and decision-making. These institutions can be either inclusive or exclusive. Inclusive economic institutions are built upon the promotion of incentives and creation of opportunities that develop economic growth and reward creativity. Exclusionary institutions take away incentives and block opportunities. Economic institutions are influenced by political institutions and Robinson and Acemoglu argue that it is political institutions that sway the long term prosperity or failure of a country. Political institutions are inclusive if they have a strong centralized government in place to uphold the rule of law and if they have a broad democratic representation of all groups from a society. If the political institution does not have these two characteristics it is extortive/ exclusive. Although the US is a good example of how the political institution can be inclusive and successful it can be difficult to reconcile the two aspects of an inclusive political institution.
Institutions Hypothesis
The Acemoglu-Robinson (2012) “institutions hypothesis” claims that differences in the way societies organize themselves shape the incentives of individuals and businesses
These differences in the quality of the rules of the game are ultimately responsible for the significant differences in per capita income within or across countries.
Glorious Revolution
Glorious Revolution; end of slavery and rise of serfdom under European feudalism created a power vacuum filled by autonomous towns
James II died without an obvious heir William of Orange a protestant took over
Magnuson’s Cure
reconcile profits and the common good
Don’t overthrow the Republic that created you.
Think long-term, if you can.
Serve the shareholders first and foremost.
Treat stakeholders right—workers & communities
Don’t destroy the planet.
Focus on creating wealth instead of distributing existing wealth through political engineering or financial engineering.
Compete fairly but also cooperate.
Invest in the future and innovate, but without reckless risk-taking.
Good Governance (Nelson)
One of humankind’s most remarkable creations must be saved from damaging excesses by the joint effort of management, regulators, activist investors, and citizen stakeholders.
Liberal Capitalism
Private capital. no legal discrimination, entrepreneurship
State Capitalism
mixed ownership of capital,endemic corruption, meritocracy, family dynasties, political entrepreneurship
Using static criterion
— who owns what is a good way.
Using dynamic criterion
—who owns what and who decides what is a better way.
Stalinist Socialism
Stalinist socialism puts under state ownership and controls almost all land and capital. It allocates scarce resources administratively via quotas and planner-determined prices. Markets are either outrightly illegal (which creates a sizeable second economy) or highly constricted. Stalinist planning had to contend with the contradictions between profit-led incentives and state plan fulfillment in quantitative forms. Part Two of this book provides a detailed exposition of this variant of socialism.
Market Socialism
market socialism keeps state ownership of capital while restricting central planning to the commanding heights. It permits state credit to be extended to organized groups of citizens for establishing profitable labor-managed firms. Members enjoy the right to net income but not the right of alienation. Directors hired by the worker councils manage these labor-managed firms which tend to be egalitarian and overly concerned with job security. Because separation entails the loss of any claim over the firm’s future income, the worker councils are averse to re-investing retained earnings for business expansion.
