Midterm

Question 1

Utopian Socialism

Answer 1

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.

Question 2

Economic “System”

Answer 2

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.

Question 3

Market (capitalist) Economy

Answer 3

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

Question 4

Moral (social) economy

Answer 4

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

Question 5

Varieties: Capitalism (liberal and state) v. Socialism (Stalinist and market)

Question 6

Scientific Socialism

Answer 6

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.

Question 7

Rational Choice

Answer 7

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.

Question 8

embeddedness

Answer 8

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

Question 9

Double Movement

Answer 9

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.

Question 10

historic materialism

Answer 10

the motive force of history is class struggle over production and distribution and social classes coexist in a world of contradictions

Question 11

the motive of history is what?

Answer 11

class struggle due to materialism

Question 12

market and liberty are what

Answer 12

Market (material necessity) and Liberty (social and political freedom) coexist contradictorily

Question 13

The Great Transformation’s verdict:

Answer 13

Prosperity came with unacceptable social degradation and thereby inviting pushback (1848, Great Depression, Revolutions) by the marginalized (proletariat, small producers).

Question 14

John M. Keynes:

Answer 14

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

Question 15

John Rawls:

Answer 15

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.

Question 16

Every economic system has three dimensions:

Answer 16

Competition (horizontal interdependence)
Command (vertical interdependence)
Change (motive force, and time)

Question 17

Well-designed economic systems are

Answer 17

Efficient and productive
Fair (equal opportunity + reasonable outcome)

Question 18

Keynesian Gentle Hand:

Answer 18

This disorderly individual action leads to a coordination failure that the market cannot fix on its own—great depressions

Question 19

Smithian Invisible Hand:

Answer 19

Individuals pursue what is good for them; a good system ensures that what individuals do is also what society wants.

Question 20

the motive forces of economic actors are

Answer 20

Profits, or
Social service, self-employment or self-consumption

Question 21

Rule-makers and rule-enforcers jointly determine:

Answer 21

what economies produce,
how they produce, and
how incomes are then distributed.

Question 22

comparative advantage

Answer 22

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.

Question 23

Principal-agent problem (Agency Problem)

Answer 23

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.

Question 24

Natural Affinity Thesis (Kornai)

Answer 24

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)

Question 25

corporation

Answer 25

Limited liability company with perpetual existence and its own legal entity, dual mandate to profit and the common good

Question 26

Fordism

Answer 26

Term coined to mean a corporate model focues on mass production, standardization, and mass production

Question 27

Monopoly

Answer 27

A single firm takes control of an entire market and stifles incentives and blocks entry/exit to prevent competition from existing

Question 28

Fusion: Inclusionary v. exclusionary pol/econ systems

Answer 28

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.

Question 29

Institutions Hypothesis

Answer 29

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.

Question 30

Glorious Revolution

Answer 30

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

Question 31

Magnuson’s Cure

Answer 31

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.

Question 32

Good Governance (Nelson)

Answer 32

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.

Question 33

Liberal Capitalism

Answer 33

Private capital. no legal discrimination, entrepreneurship

Question 34

State Capitalism

Answer 34

mixed ownership of capital,endemic corruption, meritocracy, family dynasties, political entrepreneurship

Question 35

Using static criterion

Answer 35

— who owns what is a good way.

Question 36

Using dynamic criterion

Answer 36

—who owns what and who decides what is a better way.

Question 37

Stalinist Socialism

Answer 37

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.

Question 38

Market Socialism

Answer 38

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.