20.0 Epilogue

20.1

Economics is a single tool in a toolkit for understanding how humankind works

A liberal society where markets determine everything is a relatively new phenomenon

Making it work is a tricky business While the system is fairly new, human

nature has not changed, and this is what drives the system

History of economic thought

Many philosophers struggled with the issues of unconstrained freedom

Hobbes thought this would unleash a no-holds-barred struggle for personal gain - a rent-seeking war –

the Hobbesian abyssEarly liberal philosophers addressed how to

avoid this

20.2 Adam Smith and Commutative Justice

Smith said that a society of individual liberty could only be constructive

if it was accompanied by commutative justice – fairness in the rules of the game

How to accomplish this?

French Physiocrats – solution was an enlightened despot who would enforce these standards

Smith rejects this

Smith’s answer-

have a set of shared civic valuesChildren should be taught these and receive

a quality educationThey will then become productive citizensThese values will emerge by civic discourse

and trial and errorGovernment will play a crucial role in

developing society

Smith understood

the destructive power of bad government

However, he believe the answer was not to abolish government, but

to work as a citizen to ensure government played a constructive role in society’s development

20.3 John Stuart Mill and Distributive Justice

Smith wrote in the late 1700s

By the early 1800s, the Industrial Revolution was in full force

Misery of the working class grows

Many philosophers concluded that private property and individual freedom was a failure

1848 – Marx and Engels write

the Communist Manifesto – providing alternate ideas on ownership and societal structure

Done as a response to the misery of workers, it

called for an end to the liberal experiment

In the same year, J.S. Mill writes

Principles of Political Economy

He rejects communism, saying that if all goods were distributed equally,

people would try to avoid their fair share of work

He also points out that the laws of property have advantaged some, making the

race not fair to start

Marx says

the system leads to an unjust outcome, and must be replaced

Mill says the system isn’t the problem, it is the problem of

unjust distribution of the social endowment that is leading to the unjust outcomes

Mill says liberal societies can fix that problem

Mill says

That if people started off more fairly, then the socialists would not view the system as so evil

Mill ponders how to make this more just distribution happen

He says the whole point of private property is to gain the fruits of your own labor,

but to inherit wealth from your parents gives you an unearned advantage

Mill’s solution-

Limit what one can acquire by inheritance

The dying can give away all his wealth and property,

but not to lavish upon any one person beyond a maximum-

to afford “comfortable independence”

If you want more, you have to work for it

20.4

To have a constructive liberal society, you need

Commutative justice – fair rules

And

Distributive justice – a fair race

These concepts are interdependent

Jerry’s view for achieving this

Use passing generational wealth as a “human capital account” to nurture

the emerging generation by providing

high quality health care and high quality public education

This will enrich our common civic values

20.5 Why value this experiment?

Mill rejected communism not because he didn’t think it could work,

but because of what he thought it would do to the individual

Liberty nurtures our diversity of talents

Smith and Mill both agreed

that wealth was not the ultimate measure of human achievement

Material achievements were only useful in realizing the richness of human life

20.6

Keynes questioned the “lack of clearness or generality in the premises” underlying the superstructure of theory

One of the maintained assumptions in the story was that initial endowment was a given,

and we’ve seen how initial endowment issues have had crucial effect on people’s views of the liberal experiment

However, there is another maintained assumption

that is also important to examineWe’ve assumed that the goal of everyone is

to maximize utilityIf everyone acted that way, we would live in

the Hobbesian abyssSmith says a commitment to shared civic

values is the force that holds the abyss at bay

Duty

Smith says it is our duty to be a good citizen

All will then benefit if we play by the same constructive rules

We are capable of making behavior choices that transcend self-interest

Examples

Teacher in Arkansas

Congressional Medal of Honor winner

MLK quote-

“leave a committed life behind”

These things are the glue that hold a liberal society together

“with liberty and justice for all”

Our liberal experiment

Still a work in progressMarkets can serve us well, but if we depend on them to solve

everything, it won’t workIf we ignore how markets work in the

process of making things constructive, that won’t work either

You now have

A very nice tool for

understanding a very complex experiment