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Vicious and Virtuous Circles Vicious circle of debt Debt  Child Labor  Low Education  Poverty Virtuous circle of development Per capita real GDP  Health.

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Presentation on theme: "Vicious and Virtuous Circles Vicious circle of debt Debt  Child Labor  Low Education  Poverty Virtuous circle of development Per capita real GDP  Health."— Presentation transcript:

1 Vicious and Virtuous Circles Vicious circle of debt Debt  Child Labor  Low Education  Poverty Virtuous circle of development Per capita real GDP  Health  Productivity

2 Adam Smith’s Glorious Vision Accumulation + Division of Labor = Cumulative Progress

3 Adam Smith Accumulation: “capitals are increased by parsimony and diminished by prodigality and misconduct.” Division of labor: “… natural propensity among men to truck, barter, and exchange one thing for another.” The division of labor is limited by the extent of the market. Free Trade  Extended Market

4 Adam Smith: Virtuous Circle of Growth Accumulation | Division of Labor | Productivity | Reduced Cost | Extended Market | Profit

5 Adam Smith: Limits to Growth Accumulation | Competition Up | Profit Down Steady State: “that full complement of riches which the nature of [a nation’s] soil and climate, and its situation with respect to other countries, allow it to acquire.” But steady state far off in the future

6 The Dismal World of David Ricardo and Thomas Robert Malthus Diminishing Returns to Land - Intensive Margin - Extensive Margin Rent = Productivity Premium over Marginal Land Constant Returns to Manufacturing Iron Law of Wages … subsistence - Wage Fund - Malthusian Law of Population

7 The Dismal World of David Ricardo Accumulation | Increase Wage Fund | Increased Workforce | Increased Cultivation | Increased Food Cost (Labor Theory of Value) | Increased Rent Share | Reduced Profit Share | Reduced Accumulation

8 Ricardo’s Prescriptions Free Trade – Import Food – Repeal “Corn Law” Tariff Promote Colonies (J.S. Mill) Abolish Poor Laws Population Growth  Wage Below Subsistence Tax Rents and Luxuries vs Malthus  Landlords Consume “Glut”

9 Modern Malthusians: The Limits to Growth Lily – Pond S P R A W L Finite Resources Environmental Catastrophe Why not market solution?? – Tragedy of the commons Why not Tech – Fix ???

10 Karl Marx: Inherent Contradictions of Capitalist Development Accumulate, accumulate… That is Moses and the prophets.

11 Karl Marx: Inherent Contradictions of Capitalist Development Capitalists … own means of production Workers … paid subsistence wage Exploitation  Surplus Value (Profit) Accumulation of profit  Crisis  Monopoly + Immiseration of labor  Revolution  Socialism The expropriators are expropriated

12 Karl Marx: Contradictions of Capitalist Development Flavors of Capitalist Crisis Falling Rate of Profit – Profit Squeeze Disproportionality – Uncertainty  Error  Overproduction Underconsumption Heightened accumulation  Increased Supply + Diminished Demand Crisis : Rush for Liquidity  Breakdown of Monetary Economy

13 Vlad Lenin Imperialism: The Highest Stage of Capitalism Viewed from the center, the periphery offers Untapped Markets + Cheap Food + Outlet for Investment (forestall stagnation) | International Competition for Dependencies | Capitalist Wars

14 Libertarian / Austrian Insights Joseph Schumpeter – Entrepreneur  Progress – Creative Destruction Renews Enterprise Economy – Antidote to Marx Karl Polyani – Market Imposed by State – Substitute for Marx

15 Karl Polanyi The Great Transformation Market Economy is Historically Rare Laissez Faire is Unnatural – Enforced by Strong, Oppressive State Resistance to Market is Natural – Reaction to Liberalism … Welfare State – Social Protection vs “Self – Regulating” Market

16 Karl Polanyi The Great Transformation Pre – industrial society – Reciprocity: produce & share according to social role – Redistribution via public consumption Market economy – Behavior “guided” – directed, dictated – by prices – Resistance emerges naturally, quickly

17 Gunnar Myrdal, Monetary Equilibrium 1933 Chair in Political Economy, University of Stockholm 1934 Elected to Swedish Senate, Social Democratic Party 1938 Carnegie Corp Grant to Study Situation of American Negro 1944 An American Dilemma 1942 Reelected to Swedish Senate: Board, Bank of Sweden/Chair, Post -War Planning Commission/1945 – 1947 Minister of Commerce Executive Secretary, UN Economic Commission for Europe 1957 Rich Lands and Poor Twentieth Century Fund An Asian Drama: An Inquiry Into the Poverty of Nations The Challenge of World Poverty: A World Antipoverty Program 1961 Professor of International Economics, University of Stockholm 1974 Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel (shared with Friedrich von Hayek, opponent of planned economy) Married to Alva Myrdal, Swedish Ambassador to India and Nobel Peace Prize Laureate

18 Gunnar Myrdal Cumulative Causation Thems that gots gits. For unto everyone that hath shall be given, and he shall have in abundance; but from him that hath not shall be taken away even that which he hath.Matthew

19 Vicious and Virtuous Circles Vicious circle of debt Debt  Child Labor  Low Education  Poverty Virtuous circle of development Per capita real GDP  Health  Productivity

20 Gunnar Myrdal Cumulative Causation Equilibrium Approach “Harmony of Interests” Laissez – faire Free Trade Critique of Equilibrium Approach The “other things” that are assumed to remain equal – particularly social and political relations – change with economic outcomes. They change in ways that lead to divergence, not equilibrium. Thems that gots gits.

21 Gunnar Myrdal Cumulative Causation “Spread Effects” Peripheral regions supply the dynamic center “Backwash Effects” Dynamic regions suck the best resources from the backwater Free trade and free migration hurt the periphery

22 Vicious and Virtuous Circles Vicious circle of debt Debt  Child Labor  Low Education  Poverty Virtuous circle of development Per capita real GDP  Health  Productivity

23 Raul Prebisch – Hans Singer UNECLA Primary goods trap Development  increased demand for manufactured goods Demands for primary goods are income inelastic  Primary goods prices fall relative to manufactured goods prices over time  Terms of trade move against primary good exporters Prescription: Import Substitution Industrialization (ISI)


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