Transcript Development Ideas

Vicious and Virtuous Circles
•Vicious circle of debt
Debt  Child Labor  Low Education  Poverty
•Virtuous circle of development
Per capita real GDP  Health  Productivity
Adam Smith’s Glorious Vision
Accumulation
+
Division of Labor
=
Cumulative Progress
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
Adam Smith:
Virtuous Circle of Growth
Accumulation
|
Division of Labor
|
Productivity
|
Reduced Cost
|
Extended Market
|
Profit
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
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
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
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”
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 ???
Karl Marx:
Inherent Contradictions of
Capitalist Development
• Accumulate, accumulate… That is
Moses and the prophets.
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
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
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
Libertarian / Austrian Insights
Joseph Schumpeter
– Entrepreneur  Progress
– Creative Destruction Renews Enterprise
Economy
– Antidote to Marx
Karl Polyani
– Market Imposed by State
– Substitute for Marx
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
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
Gunnar Myrdal, 1898 - 1987
1931 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
1947-57 Executive Secretary, UN Economic Commission for Europe
1957 Rich Lands and Poor
1957-61 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
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
Vicious and Virtuous Circles
•Vicious circle of debt
Debt  Child Labor  Low Education  Poverty
•Virtuous circle of development
Per capita real GDP  Health  Productivity
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.
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
Vicious and Virtuous Circles
•Vicious circle of debt
Debt  Child Labor  Low Education  Poverty
•Virtuous circle of development
Per capita real GDP  Health  Productivity
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)