Module 5 Flashcards
Aristotle emphasizes
the importance of domestic
production (“____”) and
explains the role of money.
Economy
Scottish writer _____
is often considered the most
important economist the
world has ever known. The concepts
of ____ and _____ that
he explored, and the possibility of
different types of agreements and
interests—such as “_____”—are of recurring appeal
to philosophers.
Adam Smith, Bargaining, Self-Interest, The Common Interest
His writings are
also important because they give
a more general and abstract form
to the idea of the “____”
society that was developed by
his friend David Hume
Commercial
Man is
an ____
that makes
_____.
Animal, Bargains
In other words, “we address
ourselves, not to [another’s]
humanity, but to their ____.”
Self-love
Humans may also depend on this
sort of “_____”,
but they cannot resort to it whenever
they need help, because life requires
“______.”
Fawning or Servile Attention, The Cooperation and Assistance of
Great Multitudes
For this reason, “man is an
animal that makes _____”—and
the _____ is struck by proposing
a deal that appears to be in the
self-interest of both parties.
Bargains
This process was
revolutionized by the invention of
_____, which abolished the need
to ____.
Money, Barter
From then on, in Smith’s
view, only those who were unable
to work had to depend on _____.
Everyone else could come to the
marketplace to exchange their
____—or the money they earned
through ____—for the products
of other people’s ____.
Charity, Labor
This elimination of the need to
provide everything for ourselves led
to the emergence of people with
particular sets of skills (such as
the baker and the carpenter), and
then to what Smith calls a “_____” among workers. This is
Smith’s phrase for ______,
whereby an individual not only
pursues a single type of work, but
performs only a single task in a job
that is shared by several people.
Division of Labor, Specialization
The _____ is the key to establishing
an equitable society, in Smith’s view.
With the freedom provided by the
buying and selling of goods, individuals
can enjoy lives of “_____.”
Market, Natural Liberty
Smith illustrates the importance of
specialization at the beginning of
his masterpiece, _____ , by showing how the
making of a humble metal pin is
radically improved by adopting the
factory system.
The Wealth of Nations
Smith was impressed by
the great improvements in the
productivity of labor that took place
during the ______—
improvements that saw workers
provided with much better
equipment, and often saw
machines replacing workers.
Industrial Revolution
The _____ could not
survive in such a system, and even
philosophers began to specialize
in the various branches of their
subject, such as logic, ethics,
epistemology, and metaphysics
Jack-of-all-trades
Smith says that in conditions
of _____, the market can
lead to a state of ____—
one in which everyone is free to
pursue his own interests in his own
way, so long as it accords with the
laws of justice
Perfect Liberty, Perfect Equality
By equality, Smith is not referring to equality of opportunity, but to equality of
____. In other words, his goal
is the creation of a society not
divided by competitiveness, but
drawn together by ____
based on mutual self-interest.
Condition, Bargaining
His point is
that society as a whole benefits from
individuals pursuing their _____. For the “______” of
the market, with its laws of supply
and demand, regulates the amount
of goods that are available, and
prices them far more efficiently than
any government could.
Own Self-Interests, Invisible Hand
In Smith’s proposed society, a _____
can limit itself to performing just a
few essential functions, such as
providing defense, criminal justice,
and education, and taxes and duties
can be reduced accordingly
Government
Just as bargaining can flourish within national boundaries, so it
can flourish across them, leading to
_____—a phenomenon
that was spreading across the
world in Smith’s time.
International Trade
Nevertheless, when
The Wealth of Nations was first
published, its doctrine of free and
unregulated trade was seen as
revolutionary, not only because of
its attack on established commercial
and agricultural privileges and
monopolies, but also because of its
argument that a nation’s wealth
depends not on its gold reserves,
but on its ______—a view that went
against all economic thinking in
Europe at the time.
Labor
_____ is an incredible
money-creating machine, but Smith
warns against the dehumanizing
effects it can have on workers if it
is used without regulation.
The Production Line
A ____ is a concept,
and as such can exist anywhere—
not only in a designated place such
as a town square.
Market
________
explored the idea that when people
act out of self-interest, they benefit the
whole of society, like the self-interested
behavior of bees benefits the hive.
Mandeville’s Fable of the Bees
Man, in his freedom, rivalry,
and desire for gain, is “led by an
____ to promote an end,
which was no part of his intention”
—he inadvertently acts on behalf of
the wider interest of society.
Invisible Hand
The idea of “_____”
was not new. It was proposed in
1714 by the Dutch writer Bernard
Mandeville in his poem The Fable
of the Bees. This told the story
of a beehive that was thriving
on the “vices” (self-interested
behavior) of its bees. When the
bees became virtuous (no longer
acting in their own self-interest
but trying to act for the good of
the hive), the beehive collapsed.
Spontaneous Order
Smith thought that _____ were key to making society fair.
With the freedom to buy and sell, people
could enjoy “natural liberty.”
Markets, Natural Liberty
Smith saw humans
as having an inclination to “_____” (_______)
and to better themselves. Humans,
in his view, were social creatures
who act with moral restraint, using
“_____” in competition.
Truck and Barter, Bargain and Exchange, Fair Play
Smith believed that
_______ should not interfere
with commerce, a view that was
also held by other Scottish thinkers
around him, including the
philosopher David Hume (p.47).
Governments
An earlier French writer, Pierre de
Boisguilbert, used the phrase _____ (“leave nature alone”),
by which he meant “leave business
alone.”
Laisse Faire la Nature
The term “____” is
used in economics to advocate
minimal government. In Smith’s
view government did have an
important role, supplying defense,
justice, and certain “_____”
(pp.46–47) that private markets
were unlikely to provide, such
as roads.
Laissez-Faire, Public Goods
In an essay in 1945,
titled _____, the Austrian economist
Friedrich Hayek (p.177) showed
how prices respond to individuals’
localized knowledge and desires,
leading to changes in the amounts
demanded and supplied in the
market
The Use of Knowledge in
Society
Second, Smith said that the market
system generates prices that are
“___.” He believed that all goods
have a ____ that reflects
only the efforts that went into
making them.
Fair, Natural Price
Smith described the ways in which
labor, landowners, and capital (here
invested in the horses and plow) work
together to keep the _____
moving and growing.
Economic System
In that case, opportunities for gain
will arise, and prices will increase,
but only until ____ brings
new firms into the market and
prices fall back to their natural
level. ____ is essential for prices are to be fair.
Competition
In the long run, Smith
says, “market” and “natural” rates
will be the same: modern
economists call this ____.
Equilibrium
Smith also argued that market
economies provide incomes that
are fair and can be spent on goods
in a sustainable “____,” in which money paid in wages
circulates back into the economy
when the worker pays for goods,
only to be paid back out in wages
to repeat the process.
Circular Flow
____ in a market can change for many reasons. As it does so,
the market responds by altering supply. This happens spontaneously—
there is no need for a guiding hand or plan in a market that encourages
competition among self-interested people.
Demand
___ gradually rise as incomes
rise and more land is used.
Rents
Smith’s realization of the
interdependence of ____, ____, and ____ was a real breakthrough.
Land, Labor, Capital
There are two forms of
labor: ____ (engaged in
agriculture or manufacturing) and
what he called “____”
(supplying services needed to back
up the main work).
Productive, Unproductive
Smith claimed that the invisible
hand itself stimulates _____. The source of growth is twofold. One is the efficiencies
gained through the Division of Labor. Economists
call this “_____.” As
more products are produced and
consumed, the economy grows,
and markets also grow
Economic Growth, Smithian Growth
The second engine of growth is
the _____, driven
by saving and the opportunity for
profit.
Accumulation of Capital
Ultimately, the economy will grow
until it reaches a wealthy, stationary
state. In this, Smith underestimated
the role of technology and
innovation—described by the ____.
Schumpeterian Growth
Smith’s system established the parameters for
“____” economics, which
focuses on the factors of production
—capital, labor, and land—and
their returns
Classical
Later, free market
theory took a different,
“____” form with general
equilibrium theory, which sought
to show how a whole economy’s
prices could reach a state of stable
equilibrium
Neoclassical
Smith didn’t foresee the kinds of
inequalities that can arise from free
markets in their present form. In stock
exchanges and money markets notions
of “____” become almost irrelevant.
Fairness
The founder of modern
economics, ____ was
born in Kirkcaldy, Scotland,
in 1723, six months after his
father’s death.
Adam Smith
The ideas of the renowned
18th-century British
economist ____
were clearly shaped by the world he
inhabited and by his personal life.
He lived in London, England, at a
time when ____ (pp.34–35)
was the dominant economic view.
This held that international trade
should be heavily ____.
David Ricardo, Mercantilism, Restricted
Any person or
state able to produce more per unit
of resources than a competitor is
said to have an “_____.”
Absolute Advantage
This is because
he forfeits less shoe production per
hat than the superior worker would.
The inferior worker is therefore said
to have a “_____”
in hats, while the superior worker has
a comparative advantage in shoes.
Comparative Advantage
When countries specialize in goods
for which they have a ____, more goods are produced
in total, and trade delivers more and
cheaper goods to both nations.
Comparative Advantage
What determines comparative
advantage? Swedish economists Eli
Heckscher and Bertil Ohlin argued
that it comes from countries’ ____ of capital and labor.
____ will have a
comparative advantage in capital intensive products such as machines.
Relative Abundance, Capital-Rich Countries
____ will have a
comparative advantage in labor-intensive products such as farming
goods
Labor-Rich Countries
Considered one of the world’s
greatest economic theorists, ____ was born in 1772. His
parents moved to England from
Holland, and at the age of 14
Ricardo began working for his
father, a stockbroker.
David Ricardo
Ricardo’s ___ is as follows: “The rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use.” To George, this law was of fundamental importance.
Law of Rent / Theory of Rent
____ was born into
an intellectually privileged
family, and he was aware
from an early age of the British
traditions of philosophy that had
emerged during the Enlightenment
of the 18th century
John Stuart Mill
Decisions should be
made on the principle
of the greatest good for
the greatest number.
Utilitarianism
John Stuart Mill was born in
London in 1806. His father
was the Scottish philosopher
and historian James Mill, who
founded the movement of
“______” with
______.
Philosophical Radicals, Jeremy Bentham
Mill’s moral
and political philosophy is less
extreme than his predecessors’,
aiming for reform rather than
revolution, and it formed the basis
of _____.
British Victorian liberalism
After completing his first
philosophical work, the exhaustive
six-volume _____, Mill turned his attention to moral
philosophy, particularly Bentham’s
______.
System of Logic, Theories of Utilitarianism
Mill supports Bentham’s _____, but he thinks it lacks
practicality. Bentham had seen the
idea as depending upon an abstract
“_____” (an algorithm for
calculating happiness), but Mill
wants to find out how it might
be implemented in the real world.
Happiness Principle, Felicific Calculus
Mill thinks that the solution
is for education and public opinion
to work together to establish an
“______” between
an individual’s happiness and the
good of society.
Indissoluble Association
There is, however,
one situation in which this freedom
should be curtailed, Mill says, and
that is where one person’s action
impinges on the happiness of
others. This is known as the “________.” He underlines this by
pointing out that in these cases, a
person’s “own good, either physical
or moral, is not a sufficient warrant.”
Harm Principle
_______ helps his enemy
in a biblical parable that demonstrates
Mill’s golden rule: do as you would be
done by. He believed this would raise
society’s overall level of happiness.
The Good Samaritan
In the “____” , Mill gives more weight
to higher, intellectual pleasures
than to baser, physical ones.
Happiness Equation
According to Mill, there are two different desires:
_______ (the things we
want that will give us pleasure) and
______ (the things
we do out a sense of duty or charity,
often against our immediate
inclination, that ultimately bring
us pleasure)
Unmotivated Desires, Conscientious Actions
His liberalist philosophy
also encompassed economics, and
contrary to his father’s economic
theories, he advocated a _____ where government
intervention is kept to a minimum.
Free-Market Economy
Mill places the ____, rather than
_____, at the center of his utilitarian
philosophy.
Individual, Society
Every individual,
says Mill in his essay _____,
is “sovereign over his own body
and mind.”
On Liberty
In his own lifetime Mill was
regarded as a significant philosopher,
and he is now considered by many
to be the architect of ______.
Victorian Liberalism
In On Liberty, John Stuart
Mill made a famous defense
of an important tenet of
liberalism: that _____ is
the foundation of a healthy society.
Individuality
This “_____” meant that there
was a risk that interference by even
elected governments would have
harmful effects
Tyranny of the Majority
These forms of
tyranny were all the more serious,
argued Mill, because people’s
opinions were often unthinking,
rooted in little more than self-interest and personal preference.
Ultimately, the received wisdom
is then nothing more than the
interests of a society’s most
____ groups.
Dominant
Often this doesn’t happen because
of the tyranny of the majority.
This brings ____ and
hampers the testing out of new
ideas and ways of life.
Conformity
_____—such as the right
of assembly at this gay pride parade in
Paris—was central to Mill’s idea of
individual liberty, alongside freedom
of thought and freedom of opinion.
Freedom of Action
Although
heretics were no longer burned at the
stake, Mill believed that the social
intolerance of _____
threatened to dull minds and cramp
the development of society
Unorthodox Opinions
Even when society’s received
wisdoms were true, Mill argued
that it was important to maintain a
profusion of ideas—for a _____
to keep its vitality and power, it
needs to be constantly challenged
and probed.
True Idea
In Mill’s _____, each idea must constantly
be tested against other ideas. The cauldron acts like a still. False, or
broken, ideas evaporate away as they are rejected, while true ideas
are left in the mix and grow stronger
Bubbling Cauldron of Ideas
Mill believed that
when people automatically follow
_____—in a similar way to
the impact of unthinkingly held
opinions—ways of living become
sterile, and the individual’s moral
faculties are weakened.
Customs
Mill’s criterion of harm was a useful
and easily stated principle to define
the appropriate boundary between
state and individual, expressed
at a time when the relationship
between the government and
the people was going through
rapid change.
Harm Principle
Mill refined and
developed Bentham’s theory, for
example by making a distinction
between “____” and “____”
pleasures, meaning that it would
be better to be born an unhappy
Socrates than a happy pig, because
only a Socrates has the possibility
of experiencing higher pleasures
Higher, Lower
Mill argues that ____ leads to social
innovation and the growth of
knowledge, which then contribute
to happiness.
Liberty
This is a notion
of liberty that the British political
theorist and philosopher Isaiah
Berlin later called “____,”
which he defines as the absence of
constraints on actions.
Negative Liberty
His is perhaps the most
famous and frequently cited
argument for ______, which is tied to a
principle of collective well-being
rather than arguing for abstract,
inalienable rights.
Pragmatic Liberalism
Mill’s Three Basic Liberties:
The liberty of ______ absolute freedom of opinion of sentiment, and the
freedom to express them in
speech or writing.
The liberty to ______: to live our
lives exactly how we see fit, as
long as this does no harm to
others in society.
The liberty of _____: the right
to unite with others for any
non-harmful purpose, as long
as members are not coerced.
Thought and Ideas
Pursue One Own’s Tastes and Pursuits
Combination Among Individuals
