Introducing Economics Introducing Economics E-Book

David Orrell

• Herausgeber: Icon Books
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 115

Veröffentlichungsjahr: 2014

Beschreibung

A comic-book introduction to economics from David Orrell, the author of Economyths: 11 Ways Economics Gets it Wrong. With illustrations from Borin Van Loon. Part of the internationally-recognised Introducing Graphic Guide series. Today, it seems, all things are measured by economists. The so-called 'dismal science' has never been more popular - or, given its failure to predict or prevent the recent financial crisis, more controversial. But what are the findings of economics? Is it really a science? And how can it help our lives? Introducing Economics traces the history of the subject from the ancient Greeks to the present day. Orrell and Van Loon bring to life the contributions of great economists - such as Adam Smith, Karl Marx, John Maynard Keynes and Milton Friedman - and delve into ideas from new areas such as ecological and complexity economics that are revolutionizing the field.

Leseprobe

Published by Icon Books Ltd, Omnibus Business Centre, 39-41 North Road, London N7 9DPemail: [email protected] 

ISBN: 978-184831-778-9

Text copyright © 2011 David OrrellIllustrations copyright © 2012 Icon Books Ltd

The author has asserted his moral rights.

Edited by Duncan Heath

No part of this book may be reproduced in any form, or by any means, without prior permission in writing from the publisher.

Contents

Cover

Title Page

Copyright

What is economics?

Old money

Pythagoras

Harmony of the Spheres

Oikonomikos

Plato’s Republic

Aristotle

A system of opposites

Limited vs. unlimited

Spreading the word

The Dark Ages

The Middle Ages

The growth of Islam

Feudalism

The universities

Saint Thomas Aquinas

Copernicus

Navarrus

Mercantilism

The rise of empire

Mercantilist economics

Power of the state

Strength in numbers

Rational mechanics

Atoms

Mad markets

Light vs. darkness

Leviathan

Love of gain

Locke’s blank slate

The social contract

The value of money

One vs. plurality

Supply and demand

Silver crisis

Free trade

The science of money

William Petty

Political arithmetick

Weights and measures

Making some dough

François Quesnay

The Physiocrats

Le Zig-zag

Blood-letting

Go with the flow

Jacques Turgot

Adam Smith

The Scottish Enlightenment

The age of commerce

The mercenary society

The Wealth of Nations

A labour theory of value

The natural price

The law of economic gravity

The invisible hand

Market order

Divide and conquer

Growing markets

The Industrial Revolution

Thomas Malthus

Exponential growth

Sickly season

Survival of the fittest

Jeremy Bentham

The hedonistic science

Rational society

David Ricardo

High rent

Repealing the Corn Laws

Comparative advantage

John Stuart Mill

Spread the wealth

Human improvement

Steady state

Making Money

Karl Marx

Surplus value

Boom and bust

Class revolt

The end of history

Say you want a revolution

Supply and demand

Real science.

Marginal utility

Rational economics

Market oscillations

The average man

Ideal markets

Léon Walras

Pure economics

The groping hand

Vilfredo Pareto

The 80-20 rule

Neoclassical economics

Rational economic man

At rest vs. in motion

Sunspots

A specialized field

Alfred Marshall

Burn the mathematics

Carl Menger

Subjective value

The spontaneously emerging hand

John Bates Clark

Economies of scale

Conspicuous consumption

The leisure class

Irving Fisher

Quantity theory

Fast money

Crash

John Maynard Keynes

The paradox of thrift

The multiplier effect

Animal spirits

The long run

The New Deal

New world order

The business cycle

Super cycle

Creative destruction

Hayek and the uncomputable

Hayek’s influence

The neoclassical synthesis

The Phillips curve

Paul Samuelson

Bastard Keynesianism

Losing sight of uncertainty

The Arrow-Debreu model

Shopping list

Future perfect

The jewel in the crown

Milton Friedman

Monetarism

Stagflation

Slow and steady

Natural unemployment

The Chicago approach

Rational markets

Perfect model

Efficient markets

Economic astrology

Bad forecast

The normal distribution

Financial engineering

The Bank of Sweden Prize

The Apollo missions

Model economy

Earthrise

Spaceship Earth

Nicholas Georgescu-Roegen

Natural capital

Steady state

Ecological economics

The church of economics

Behavioural economics

Information asymmetry

Power law

The science of happiness

Feminist economics

The Minsky Moment

Crash-prone

Complex systems

Agent-based models

Uncertainty reappears

Subprime

A lack of ethics

Linear science

Post-Pythagorean economics

“Eco-nomics”

Further Reading

About the Author and Artist

Acknowledgements

Index

What is economics?

Economics is the study of how goods and services are produced, distributed, and consumed by society. Because resources are usually assumed to be in short supply, the field was described by English economist Lionel Robbins in 1935 as “the science of scarcity”.

The word “economics” was coined from the Greek words oikos (household) and nomos (law), so it means something like household rule or home management.

Though “household” is now generalized to include individuals, companies, countries, and the entire world system.

While people have been calling themselves professional economists only since the 19th century, the field has roots that go back much further.

Old money

Economic thought is at least as old as money itself.

The earliest coins were made from precious metals such as gold and silver. They are believed to have first appeared around the 6th century BC in what is now Turkey, but were soon in use around the civilized world, from Mesopotamia to Persia to India to China.

Ancient versions of economic ideas therefore existed in many different countries.

However, because economics has long modelled itself after sciences like physics, it has been shaped most of all by the Western scientific tradition, which itself is rooted in the ideas of Greek philosophers.

Pythagoras

The philosopher Pythagoras (c. 570–c. 495 BC) is today associated mostly with mathematics, and his famous theorem about right-angled triangles that we all learn at school. But he has had a lasting influence on science in general, including economics.

Pythagoras was considered a demi-god by the Greeks. His birth was predicted by the oracle at Delphi, and it was rumoured that his father was the god Apollo.

As a young man, I travelled the world, learning from mystics and philosophers.

On my return, I set up school in a cave, teaching mathematics.

His school grew into what amounts to a pseudo-religious cult, based on the worship of number. The Pythagoreans were highly secretive and left no written documents, so we only know about them indirectly.

Harmony of the Spheres

The Pythagoreans believed that all things were composed of number. Each number had a special, almost magical significance. The most sacred number was 10, which was symbolized by the tetractys.

Pythagoras is credited with the discovery that musical harmony is based on numerical ratios between string lengths. Because music was considered to be the most mysterious of art forms, this backed up the belief that the entire cosmos was based on number: what the Pythagoreans called the Harmony of the Spheres.

Economics, and money itself, are also based on the Pythagorean idea that all things can be reduced to number. Indeed, it is believed that Pythagoras was involved in introducing the first coinage to his region.

Oikonomikos

The word “economics” was derived from a work by the philosopher Xenophon (431–c. 360 BC), who was influenced by Pythagoras. His tract Oikonomikos described how to efficiently organize and run an agricultural estate.

It must, I should think, be the business of the good estate manager at any rate to manage his own house or estate well.

He argued that complicated tasks could best be carried out through division of labour. An advantage of cities such as Athens, which was growing rapidly in size and complexity, was the availability of a variety of specialists. In smaller towns, people had to carry out more tasks themselves, which was less efficient.

While this conclusion predated Adam Smith’s thoughts on the same topic by a couple of millennia (see here), in a slave-based society the coordinating of these specialists was a task for the estate manager, not the markets.

Plato’s Republic

Plato (427–347 BC) took the idea of an optimally-managed estate a step further with his Republic, which described a utopian society ruled over by philosopher kings known as “guardians”.

To safeguard against corruption, the guardians will not be allowed to own property or lay their hands on gold or silver, and will receive only a basic living wage.Their interest will therefore be for the wealth of the society as a whole, not themselves.

Every task, including the raising of children, would be allocated to specialists. Property would be divided according to mathematical principles. The maximum number of citizens was computed by Plato to be 5,040, which has the property that it is divisible by the numbers 1 through 10 and so can be easily divided into separate administrative groups.

Aristotle

Plato’s most famous student was Aristotle (384–322 BC), who wrote and taught on subjects ranging from astronomy to medicine to ethics. He believed that the sole purpose of money was to act as a medium for exchange. As he wrote in Nichomachean Ethics, ‘all things are measured by money’.

According to Aristotle, the fair distribution of goods could be determined by different mathematical formulae, known as the Pythagorean means.

For example, suppose that one person wants to sell a piece of land to another. The seller wants at least 120 currency units, but the buyer wants to pay at most 80.In this case the correct price will be the harmonic mean, which is 96. This number is 20 per cent more than the lower price, but 20 per cent less than the higher price.

A system of opposites

In his Metaphysics, Aristotle attributes the following list of opposites to the Pythagoreans (who being highly secretive did not let it out themselves):

The Pythagoreans associated the left column with good, and the right column with evil. This list has been influential on the course of Western scientific thought, and therefore on economics.

Limited vs. unlimited

For example, the idea of limits was important to the Greeks, including Aristotle.

Aristotle noticed that merchants often accumulated immense amounts of money just through exchange, even though they did not produce anything themselves. In Politics, he therefore distinguished between two types of exchange.

The first, which I call natural, occurs when people exchange to satisfy genuine needs.This is constrained by the fact that the amount of property needed for a good life is not unlimited.

The second, unnatural, type of exchange occurred when goods were exchanged for the sole purpose of making money. Usury (lending money for interest) was particularly unethical, since it allows money to grow without limit, violating the bounds of nature.

This concern about ethics doesn’t extend to the treatment of slaves.

Spreading the word

Aristotle, like Plato, was a teacher. One of his students was a young man by the name of Alexander – a military genius who would go on to conquer an area stretching from Egypt to part of India.

Aristotle’s teachings were therefore propagated around the civilized world.The library in the city of Alexandria in Egypt (named after the war hero) became the major repository of Greek knowledge.

After the collapse of Alexander the Great’s empire in the 3rd century BC, Western economic thought went into something of a deep freeze. The teachings of Aristotle and other Greek thinkers remained locked away in the libraries.

The Dark Ages

The Romans were more interested in building viaducts than holding economics seminars. However, they did make huge contributions in the development of a legal system, including the protection of property rights which underpins capitalism.*

The fall of the Roman empire has been blamed on many factors, but the economy was certainly one of them.

In the 3rd century AD, the lack of new foreign conquests meant the supply of precious metals decreased.Coins were therefore debased, resulting in severe inflation.

Rome’s decline was followed by the period that came to be known as the Dark Ages, though today historians prefer to call it the Early Middle Ages (roughly from the 5th century AD to the 11th century). Trade and the importance of towns declined, and the economy was based largely on self-sufficiency.

* Capitalism is an economic system based on private ownership of the means of production and trading goods for profit.

The Middle Ages

Economic thought in the Middle Ages was dominated by religion, and in particular the battle between Christianity and Islam. The focus was on ethics.

The Old Testament contained many statements about the economy. It forbade usury, and in the “Jubilee” every seven years, all debts were to be cancelled. The rewards of hard work were considered just, but the pursuit of wealth for its own sake was discouraged.

The New Testament took a more directly anti-business line – perhaps because the imminent second coming of Christ meant the end of the world in its current form. This made the pursuit of wealth a little redundant.

It is easier for a camel to pass through the eye of a needle,…… than for a rich man to enter into the kingdom of God.

The growth of Islam

What Europeans call the Dark Ages was a bright age for Islam. It was marked by the Muslim conquest of Arabia, North Africa, Persia, and parts of Spain. Increasing trade meant there was great interest in the role of money, which was by then far more widely used.

As with Christian Bible, the Koran included statements that applied to the economy. Again, usury was forbidden.And poor people should be supported through the proceeds of taxation.

The Muslim scholar known in Europe as Averroes (Ibn Rushd, 1126–98) was born in Cordoba, Spain. His work encompassed many areas, including law, astronomy, and translating Aristotle.

While Aristotle saw money as a somewhat arbitrary means of exchange and measure of value, Averroes believed that money, like Allah, was fixed and unchangeable. It was therefore a sin for a ruler to dilute its value, for example by reducing the precious metal content of coins.

Feudalism

Christian Europe was organized in a rigidly hierarchical system now known as feudalism.

A landlord grants land to his vassals …… and we, as his knights, have to perform military service in exchange.

The largest and most powerful landlord was the Church. In concert with religious orders like the Knights Templar,* the system was successful at generating military power – very important in a time when land was usually acquired through conquest rather than a real estate office, and the expression “hostile takeover” could be taken literally.

Christian Europe eventually recaptured much of the territory it had lost to the Muslims. This led to a huge expansion in the size of their trade routes and economy. Through the translations of Averroes, Aristotle was rediscovered.

* During the Crusades, the Knights Templar set up the world’s first banks.

The universities

In the 12th century, growing prosperity, an emerging class of city-dwellers, and the rediscovery of ancient thinkers all led to an interest in learning. People suddenly had a need for higher education. But to satisfy it, they needed to invent a new institution: the university.

The first recognized universities were in Bologna (1088), Paris (c. 1150), and Oxford (1167).Others quickly followed, and by the beginning of the 15th century there were over 50 universities across Europe, all controlled by the Catholic Church.