Something that I read…

…in this book “New Ideas From Dead Economists”.

It is not the consciousness of men that determine their being, but, on the contrary, their social being that determines their consciousness.

Good book, btw. Worth a read to understand the evolution of economic ideas. Covers Adam Smith, Malthus, Ricardo, Marx, John Stuart Mill, Alfred Marshall, Keynes, Galbraith, Friedman, and a couple of others.

Update
In 1738, the Irish philosopher Francis Hutcheson, who taught at the Glasgow university was accused by the Glasgow Presbytery for teaching the following two dangerous doctrines:

1) The standard of moral good is promotion of happiness to others
2) It is possible to know good and evil without knowing God

I don’t think he suffered much for it. πŸ™‚

Update
Pollution often indicates a gap in the Adam Smith model. Pollution is a cost of doing business, but the corporation/individual does not pay for the pollution. Society pays for it. Taxes on pollution is an often suggested remedy.

Do you think taxes will work? I doubt it. People will probably find a way to pass on the taxes to the end consumer in some way or the other. Implies return to Status Quo. Incentives probably work better than taxes. If so, what kind of incentives?

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Posted on April 12, 2005, in Uncategorized. Bookmark the permalink. 11 Comments.

  1. I tried to read keynes’ essays, am not a student of economics made some sense to me (seems he is one of the most influential personalities of 20th century), i believe his economic policies were widely implemented after much apprehension, at the end of ww-II with regard to reparations to be paid by Germany to the victor nations.
    I would like to read adam smith, chomsky often says that the globalization or liberalization as it is followed now, is not in the spirit of what smith had recommended.
    i hate to take the space on ur column, but was curious, if you would, can you explain, why the rural economy of India, has had a downfall/stagnancy since the liberalization/neo-liberalization of our economy in the 1990’s ( if the statement is true.)

    • why the rural economy of India, has had a downfall/stagnancy since the liberalization/neo-liberalization of our economy in the 1990’s ( if the statement is true.)

      Maybe investing in rural development will not give you the ROI that you would get get through traditional business investments? Another reason could be the disparity in buying power between rural and city/urban populations.

      • This is what has been bothering me, the disparity in buying power.
        So in two/three decades, if india were to become an economic super power, then would it mean that the disparity is going to widen or the distribution of wealth would adjust itself, to create a wider middle class. ( i believe that in india the majority of the population is still in rural areas)
        U.S.A. has a larger middle class, and the disparity in buying power is not as wide as in India. How do you think we would achieve that?

      • Currently, the middle class is increasing, as we speak,in India. If one were to look around us, we might see that the buying power of atleast the urbanite has increased since say,10-15 years ago.

        But to achieve the hypothetical economic super power status, we’d definitely have to take the rural populace in the flow. It’s quite inconcievable to think that we can make it possible without 70% of these people who are still floundering on the poverty line. Like you say, the aim would be to bring them higher. Shrinking government sector jobs are not helping either.

        I think one would have to generate more jobs which the 70% can handle(not just MNCs,privatisation and any such). Such jobs are available in the agricultural/manufacturing sector primarily where educational requirements are currently low but skill is preferred. Maybe by generating more such jobs, we can allow them better access to education and resources, which in turn will help them go up the chain.

    • πŸ™‚ I am going to ramble, and probably won’t answer your question.

      Keynes was easily the most influential economist of the 20th century. His economic policies were implemented during the Great Depression in the US actually. He introduced the then radical notion that Government expenditure should be increased to recover from a recession and boost economic activity. In general, govt’s and fiscal policy took on a greater role mostly due to his work and influence.

      Yes, I don’t think Globalization is followed in the way Smith had envisaged. He was probably as much a philosopher as much as he was an economist, and he would probably be highly disillusioned with at least some aspects of globalization. For instance, he advocated the Theory of Absolute Advantage w.r.t International Trade, where some nations have an absolute advantage over others in certain spheres of activity. Whereas in practice, that has been superseded by David Ricardo’s Theory of Comparative Advantage (The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good). To take an e.g., one could argue that with respect to IT, the US probably has an absolute productivity advantage over India, but still it importants lot of IT from India, because the US has a greater opportunity cost(i.e. it gains much more by diverting its resources to non IT work) to do much of the IT work within its borders. I think Adam Smith would be disillusioned with the predominantly “cost focused outsourcing”, be it in manufacturing in China, or Services in India, that passes for trade today. So probably Chomsky is right.

      About the rural economy, more job opportunities are created in the urban economy, there is more money in the urban economic system, and all people have a general desire to better their financial condition, leading to mass urban migration, and a fall in the rural economy. Why job opportunities are not created in the rural economic system is a different topic. There could be many reasons -not enough ROI like points out, lower educational levels, the fall in % importance of agriculture and related activities on employment levels. Besides, the domestic economy is beginning to get a boost only now, when a considerably affluent class has been created due to the gains from having integrated with the world economy. And the rural economy depends more on the domestic economy than the urban economy. Probably, most important of all, all of us, no matter where we live, are more materialistic. And prefer some of the comforts of urban life.

      Karl Marx said “Capitalism rescued a considerable part of the population from the idiocy of rural life”. Whether rural life is idiocy or not, I don’t know.

      • Thanks for the detailed reply. It did answer my question.

        I too would like to believe, when india would level with the world economy, the domestic economy would have no abysmal valleys.

        I guess friedman would have dealt in detail on this subject in his book
        “The World Is Flat: A Brief History of the Twenty-first Century”

      • I too would like to believe, when india would level with the world economy, the domestic economy would have no abysmal valleys.

        Oops, I didn’t mean that at all. πŸ™‚

      • “Besides, the domestic economy is beginning to get a boost only now, when a considerably affluent class has been created due to the gains from having integrated with the world economy. And the rural economy depends more on the domestic economy than the urban economy.”

        i derived that due to the growth of affluent class in the urban area, there spending power increases, and the money has to trickle to the bottom rung people(occupied predominantly by rural people). and this trickling is a long process or i must have got it all wrong.

        (and part of what i said abt no abysmal valleys in domestic economy i meant, a near equal distribution of wealth among PEOPLE, may be more like a bell curve, where the middle part is considerably larger than both extremes)

        i guess i should not have said domestic economy will be flat, and u imply
        rural economy will never equal urban economy.
        excuse my stupidity, as i said i am not a student of economics, i would have to educate myself.

      • Oh, i think we misinterpet each other. Trickle down to rural economy is all fine – you are right about that. And it is a medium-to-long term process.

        But I though you said that that the doemstic economy will not have valleys because it will integrate with the world economy. That, I don’t believe.

        Right now circumstances are favourable to us. No guarantee it will be so in future. Monetary mismanagement/business cycles, technology breakthroughs, anything could pull down our domestic economy once we are sufficiently integrated with the global economy. Argentina went from boom to bust pretty quickly. The global freemarket enterprise/global capitalism rests on a delicate balancing act of govt. regulations, monetary policies, free trade laws, tariffs etc. We have played our cards well so far, but integration comes with the risk of instability. However, we have a strong internal economy, so we have some inherent fallbacks. I think for most activities, lesser govt. is good, but at the same time I am personally not a big fan of global integration.

        As for economics, I am not an expert. I have said this earlier, but will say it again. Generally, I think I write sanely :-), but kindly do not take all my opinions or posts at face value. I write mostly to put my ideas & thoughts (right or wrong) on paper. If it helps you, nice. But you will find different opinions, which might be right for all I know. And I might change my opinions as well, if I find good reasons to do so. I am fickle that way.

        And yes, all of us should educate ourselves on economics. Some of it is nonsense, some of it is common sense, but there are many things to learn as well.

  2. sorry for misplacing reply… πŸ™‚ i needed you to know that this:

    The rain falls pouring
    down on a summer terrace;
    I smell my freedom

    :: is awesome!

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