Pe r s p e c t i v e s f r o m S o c i a l E c o n o m i c s R E D I S C OV E R I N G SOCIAL ECONOMICS B E YO N D T H E N E O C L A S S I C A L PA R A D I G M ROGER D JOHNSON www.ebook3000.com Perspectives from Social Economics Series Editor Mark D White City University of New York College of Staten Island, Staten Island, USA The Perspectives from Social Economics series incorporates an explicit ethical component into contemporary economic discussion of important policy and social issues, drawing on the approaches used by social economists around the world It also allows social economists to develop their own frameworks and paradigms by exploring the philosophy and methodology of social economics in relation to orthodox and other heterodox approaches to economics By furthering these goals, this series will expose a wider readership to the scholarship produced by social economists, and thereby promote the more inclusive viewpoints, especially as they concern ethical analyses of economic issues and methods More information about this series at http://www.springer.com/series/14556 www.ebook3000.com Roger D Johnson Rediscovering Social Economics Beyond the Neoclassical Paradigm Roger D Johnson Mechanicsburg, Pennsylvania USA Perspectives from Social Economics ISBN 978-3-319-51264-8 ISBN 978-3-319-51265-5 (eBook) DOI 10.1007/978-3-319-51265-5 Library of Congress Control Number: 2017930487 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover image © Folio / Alamy Stock Photo Cover design by Henry Petrides Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland www.ebook3000.com I owe a special thanks to my wife Jeanne for her patience, and to my now grown-up children Katie, Erik and Megan for their encouragement PREFACE Academicians generally attempt to project an aura of objectivity either in their methodology, forms of discourse or pedagogy, and economists seem to be particularly obsessed with the idea Unfortunately, pursuit of this end almost inevitably produces some rather distorted and muddled practices Many colleges, for example, replaced written teacher evaluation forms with standardized questionnaires that used some type of numerical scale to ostensibly convert subjective student feedback into objective measurements of the quality of each instructor’s teaching In many ways, this story serves as an allegory for the trajectory the discipline of economics has followed in attempting to maintain an appearance of objectivity, and in defining the purpose or goal of its analysis Mainstream or Neoclassical economics attempted to meet this challenge by defining the human objects of their analysis as autonomous, knowledgeable and perfectly rational individuals whose only goal was the maximization of their own welfare Every human problem could then be defined in terms of an optimization problem that, like the evaluation of instructors, could be objectively dissected using advanced mathematical and statistical tools of analysis It was their innovative use of these abstract tools of analysis that led economists to proclaim their discipline to be the ‘Queen’ of the social sciences, but in the process, they had in fact abandoned the concepts of society and human relationships The continual narrow fixation on issues regarding the identification of the ‘ideal’ equilibrium conditions, moreover, often leads them to recommend policies designed to emulate the results of vii www.ebook3000.com viii PREFACE perfect or ideal markets If economists were highway traffic and safety engineers, they would design highways and safety rules to accommodate the driving skills and vehicles of Formula or NASCAR drivers A major normative concern arises as efficiency is then effectively conflated with a particularly narrow concept of justice, but this is never explicitly recognized The primary objective of this book is to help economists understand how the issues surrounding the subjective/objective dichotomy are still firmly embedded in the foundations of the discipline, and unavoidably distort both its pedagogy and policy analysis Many of the arguments put forward in this book are intentionally drawn directly from principles level analysis because this is where every academic discipline begins to establish and instill its own ideological perspective Secondly, this book attempts to convince economists that, if they are genuinely interested in developing analysis and policies that advance human welfare, they need to consciously adopt an interdisciplinary approach This includes not only insights from the more clearly related social and behavioral sciences that are currently making significant inroads into economics, but also those disciplines like philosophy which attempt to confront and identify the moral dimensions of human existence Unfortunately, the conventional training of economists has rendered them insensitive to the particularly pernicious types of market failures and forms of injustice that can occur when market forces distort or undermine the moral bonds of society The prevailing strategy of economists to maintain a faỗade of pure objectivity can only serve to undermine the credibility of economics and turn off the next generation of potential disciples Studying the theoretical parameters required to achieve market equilibrium may be an addictive intellectual exercise, but it hardly constitutes the type of compelling vision that many students are seeking Even more important, however, is the fact that this strategy will continue to severely handicap the ability of the discipline to address vital ‘social’ issues like the need for adequate health care, growing economic and social inequality and the inevitably increasing economic/social interdependencies that Adam Smith recognized to be a central feature of market economies It seems particularly ironic that the self-proclaimed intellectual heirs of Smith have created a paradigm that reinforces the corrosive delusion of individual autonomy that he warned would creep into market-based societies There are some promising signs, however, that the intellectual specialization of labor that has long dominated academia is now being sufficiently PREFACE ix eroded so that economists will begin to recognize the type of positive synergies that can occur if they join forces with the other social sciences The ultimate transformation will come when economists become adequately trained to recognize the unavoidable normative dimensions of their analysis www.ebook3000.com CONTENTS Part I Humans, Society and Markets 1 The Foundations of Economics The Political and Moral Dimensions of Economics 17 The Moral and Social Problem of Scarcity 31 Social Welfare, Markets and Efficiency 41 Understanding Human Choice 57 Challenges to Homo Economicus 69 Understanding Markets 87 xi BIBLIOGRAPHY 177 Collier, Paul 2007 The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It New York: Oxford University Press Collini, Stephan 2010 J S Mill: On Liberty and Other Writings New York: Classic Books International Conard, Edward 2012 Unintended Consequences New York: Penguin Group ——— 2016 The Upside of Inequality New York: Penguin-Random House Cooter, Robert, and Peter Rappoport 1984 Were the Ordinalists Wrong About Welfare Economics? Journal of Economics Literature 22(2): 507–530 Davis, Alyssa, and Lawrence Mishel 2015 Top CEOs Make 300 Times More than Typical Worker Economic Policy Institute Issue Brief #399 June 21, 2015 http://www.epi.org/publication/top-ceos-make-300-times-more-than-workerspay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent Accessed Sept 2016 Deaton, Angus 2013 The Great Escape: Health Wealth, and the Origins of Inequality Princeton: Princeton University Press Defoe, Daniel 1808 Robinson Crusoe Garden City: Black and White Classics, 2014 Reprint DeVroey, Michel 2004 Involuntary Unemployment: The Elusive Quest for a Theory New York: Routledge Dorfsma, Wilfred, and Stefan Kesting, ed 2013 Interdisciplinary Economics: Kenneth E Boulding’s Engagement in the Sciences New York: Routledge Eichengreen, Barry, and Peter Temin 2000 The Gold Standard and the Great Depression Contemporary European History 9(2): 183–207 Ellerman, David P 1991 Myth and Metaphor in Orthodox Economics Journal of Post Keynesian Economics 13(4): 545–564 Epstein, Richard A 1985 Takings: Private Property and the Power of Eminent Domain Cambridge: Harvard University Press Fajnzylber, Pablo, Daniel Lederman, and Norman Loayza 2002 Inequality and Violent Crime The Journal of Law & Economics 45(1): 1–39 Farber, Henry S 2005 Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers Journal of Political Economy 113(1): 46–82 Force, Pierre 2003 Self-Interest Before Adam Smith New York: Cambridge University Press Fukuyama, Francis 1992 End of History and the Last Man New York: Free Press Galbraith, John K 2010 John Kenneth Galbraith: The Affluent Society and Other Writings, Edited by James K Galbraith New York: Library Classics of the United States Gensler, Howard J., and W David Walls 1997 Labor Force and Welfare Program Participation: The Effects of Welfare American Journal of Economics and Sociology 56(2): 725–743 Gilder, George 1981 Wealth and Poverty New York: Basic Books 178 BIBLIOGRAPHY Glassman, James K., and Kevin A Hassett 1999 DOW 36,000 The Atlantic, September, pp 37–58 Glendon, Mary Ann 1987 Abortion and Divorce in Western Law Cambridge, MA: President and Fellows of Harvard College ——— 1991 Rights Talk: The Impoverishment of Political Discourse New York: Simon and Schuster Godin, Seth 2010 Linchpin: Are You Indispensable New York: Penguin Group Goedhart, Theo, Victor Halberstadt, Arie Kapteyn, and Bernard van Praag 1977 The Poverty Line: Concept and Measurement Journal of Human Resources 12 (4): 503–520 Green, A., F Green, and N Pensiero 2015 Cross-Country Variation in Adult Skills Inequality: Why Are Skill Levels and Opportunities So Unequal in Anglophone Countries? Comparative Education Review 59(4): 595–618 Haidt, Jonathan 2012 The Righteous Mind: Why Good People Are Divided by Politics and Religion New York: Pantheon Books, a division of Random House Hamilton, Alexander and James Madison, John Jay 1787 The Federalist Papers, Gen editor Mary Carolyn Waldrop Vol editor Jim Miller, Dover Thrift Edition Mineola: Dover Publications, 2014 Hanley, Ryan P 2009 Adam Smith and the Character of Virtue New York: Cambridge University Press Harrington, Michael 1997 The Other America New York: Simon & Schuster Herman, Edward S 1981 Corporate Control, Corporate Power New York: Cambridge University Press Hicks, John R 1939 The Foundations of Welfare Economics Economic Journal (195): 696–712 Hills, Sally, and Ryland Thomas 2010 The UK Recession in Context – What Do Three Centuries of Data Tell Us? http://www.bankofengland.co.uk/publica tions/Documents/quarterlybulletin/qb100403 Accessed Sept 2016 Jensen, Michael C., and William H Meckling 1979 Rights and Production Functions: An Application to Labor-Managed Firms and Codetermination Journal of Business 52(4): 469–506 Jevons, William S 2010 Principles of Political Economy New York: Palgrave Macmillan Public Domain, 1871 Johnson, Roger 1990 Adam Smith’s Radical Views on Property Rights, Distributive Justice and the Market Review of Social Economics 18(3): 247–271 ——— 2010 Extracting a Revised Labor Supply Theory From Becker’s Model of the Household Journal of Socio-Economics 39: 241–250 Kahneman, Daniel 2011 Thinking, Fast and Slow, New York: Farrar, Straus and Giroux Kaldor, Nicholas 1939 Welfare Propositions of Economics and Interpersonal Comparisons of Utility Economic Journal 49: 549–552 www.ebook3000.com BIBLIOGRAPHY 179 Kapur, Ajay, Niall Macleod, and Narenda Singh 2005 Plutonomy: Buying Luxury, Explaining Global Imbalances CITI Group October 16, 2005 http://delong typepad.com/plutonomy-1.pdf Accessed Sept 2016 ——— 2006 Revisiting Plutonomy: Rich Getting Richer CITI Group March 5, 2006 http://delong.typepad.com/plutonomy-2.pdf Sept 2016 Kasmir, Sharryn 1996 The Myth of Mondrag on: Cooperatives, Politics and Working Class Life in a Basque Town Albany: State University of New York Press Kennedy, Gavin 2010 Adam Smith 2nd ed New York: Palgrave MacMillan Kerr, Clark, John T Dunlop, et al 1960 Industrialism and Industrial Man: The Problem of Labor and Management in Economic Growth Cambridge: Harvard University Press Krugman, Paul 1994 Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations New York: W W Norton & Company Kuhn, Harold, et al 1996 The Work of John Nash in Game Theory: Nobel Seminar, December 8, 1994 Journal of Economic Theory 69(1): 153–185 Laffer, Arthur B 1981 Supply Side Economics Financials Analysts Journal 37(5): 29–43 Larson, Bruce 1991 A Dilemma in the Theory of Short-Run Production and Cost Southern Economic Journal 58(2): 465–474 Let Them Eat Pollution 1992 The Economist 372(7745): 66 Levitt, Steven, and Stephen Dubner 2009 Freakonomics 1st ed New York: Harper Collins Lewin, Shira B 1996 Economics and Psychology: Lessons for Our Own Day From The Early Twentieth Century Journal of Economic Literature 34(3): 1293–1323 Lofstrom, Magnus, and Steven Raphael 2016 Crime, The Criminal Justice System and Socioeconomic Inequality Journal of Economic Perspectives 30(2): 103–126 Lucas, Robert E 2003a Macroeconomic Priorities American Economic Review 91 (2): 1–14 ——— 2003b The Industrial Revolution: Past and Present Annual Report Essay Minneapolis: Federal Reserve Bank of Minneapolis, May 2004 Lucioni, Renzo 2013 Senate Voting Relationships, December, 2013 https:// www.renzolucioni.com/senate-voting-relationships Accessed Sept, 2016 Lutz, Mark A 1980 Toward a More General Economic Theory of Work International Social Science Journal 32(3): 505–516 Maki, Dean M., and Michael G Palumbo 2001 Disentangling the Wealth Effect: A Cohort Analysis of Household Savings in the 1990’s Board of Governors of the Federal Reserve System and Putnam Investments, April Malthus, Rev Thomas 1803 An Essay on the Principle of Population, ed Geoffrey Gilbert New York: Oxford University Press, 2004 Reprint ——— 1820 Principles of Political Economy, London: John Murray, Elibron Classics 2005 Reprint 180 BIBLIOGRAPHY Marshall, Alfred 1890 Principles of Economics, 8th ed Amherst, New York: Prometheus Press, 1997 Reprint Marx, Karl 1867 Capital, ed Friedrich Engels Mineola: Dover Publications, Inc., 2011 Reprint Maslow, Abraham 1943 A Theory of Human Motivation Psychological Review 50 (4): 370–396 Maxwell, W David 1969 Production Theory and Cost Curves Applied Economics 1(3): 211–224 McCloskey, D.N 1983 The Rhetoric of Economics Journal of Economic Literature 21(2): 481–517 McConnell, B.H 2007-2008 Two Goals of Executive Compensation Reform New York Law School Law Review 52: 587–597 Menger, Carl 1871 Principles of Economics Auburn: Ludvig von Mises Institute, 2007 Reprint Metler, Suzanne 2014 Degrees of Inequality: How the Politics of Higher Education Sabotaged the American Dream New York: Basic Books Mill, John Stuart 2015 John Stuart Mill: The Collection Kindle ebooks, January 16, 2015 Minsky’s Moment 2016 The Economist 30 July–5 August, pp 54, 56 Mirowski, Phillip 1989 More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economics Cambridge: Cambridge University Press Miyazaki, Hajime, and Hugh M Neary 1983 The Illyrian Firm Revisited The Bell Journal of Economics 14(1): 259–270 Mullen, Ann L 2010 Degrees of Inequality: Culture, Class and Gender in American Higher Education Baltimore: The Johns Hopkins University Press Newman, Peter, ed 2003 F.Y Edgeworth: Mathematical Psychics, and Further Papers on Political Economy Oxford: Oxford University Press North, Gary 1992 The Coase Theorem: A Study in Economic Epistemology Tyler: Institute for Christian Economics Novak, Michael 1982 The Spirit of Democratic Capitalism New York: Simon & Schuster Ostrom, Elinor 1990 Governing the Commons: The Evolution of Institutions for Collective Action Cambridge: Cambridge University Press Pareto, Wilfredo 1906 Manual of Political Economy (trans Ann S Schweir) New York: A.M Kelley, 1971 Reprint Perlman, Richard 1969 Labor Theory New York: John Wiley & Sons, Inc Pigou, Arthur C 1951 Some Aspects of Welfare Economics American Economic Review 41(3): 287–302 Piketty, Michael 2014 Capital in the 21st Century Cambridge, MA: Harvard University Press ——— 2015 Putting the Study of Distribution Back at the Center of Economics Journal of Economics Perspectives 29(1): 67–88 www.ebook3000.com BIBLIOGRAPHY 181 Pope Francis 2015 Encyclical Letter Laudato Sí of the Holy Father Francis: On Care For Our Common Home 24 May 2015 http://w2.vatican.va/content/francesco/ en/encyclicals/documents/papa-francesco_20150524_enciclica-laudato-si html Accessed 15 Sept 2016 Rand, Ayn 1964 The Virtue of Selfishness: A New Concept of Egotism New York: New American Library Reid, T.R 2010 The Healing of America New York: Penguin Books Ricardo, David 1817 Principles of Political Economy and Taxation, Dover ed London: J.M Dent & sons, Ltd., 2004 Reprint Ricci, David M 1984 The Tragedy of Political Science New Haven: Yale University Press Sandel, Michael 2012 What Money Can’t Buy New York: Farrar, Straus and Giroux Schumpeter, Joseph A 1942 Capitalism, Socialism and Democracy, 2nd ed Floyd: Impact Books, 2014 Reprint Sen, Amartya 1970 The Impossibility of a Paretian Liberal Journal of Political Economy 78(1): 152–157 ——— 1993 Does Business Ethics Make Economic Sense? Business Ethics Quarterly 3(1): 45–54 ——— 1997 Economics, Business Principles and Moral Sentiments Business Ethics Quarterly 7(3): 5–15 Sharif, Mohammed 2000 Inverted ‘S’ – The Complete Neoclassical Labor Supply Function International Labor Review 139(4): 409–435 Shiller, Robert J 2015 Irrational Exuberance 3rd ed Princeton: Princeton University Press Sims, Ronald R., and Johannes Brinkmann 2003 Enron Ethics (Or: Culture Matters More than Codes) Journal of Business Ethics 45(3): 243–256 Smith, Adam 1759 The Theory of Moral Sentiments, ed D.D Raphael and A.L Macfie, 1982 Glasgow ed Indianapolis: Liberty Classics ——— 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations, 1981 Glasgow ed., Two Volumes, Edited by R.H Campbell and A.S Skinner Indianapolis, Indiana: Liberty Classics ——— 1795 Essays on Philosophical Subjects, ed W.P.D Wightman, 1980 Glasgow ed Indianapolis: Liberty Classics Smith, Vernon L 1962 An Experimental Study of Competitive Market Behavior Journal of Political Economy 70(2): 111–137 Smith, Adam 1982 Lectures on Jurisprudence, ed R.L Meek, D.D Raphael and P.G Stein, 1982 Glasgow ed Indianapolis: Liberty Classics 1762-63(A), 1766 (B) Snowdon, Christopher 2010 The Spirit Level Delusion: Fact-checking the Left’s New Theory of Everything Hove: Little Dice 182 BIBLIOGRAPHY Stampfli, Joseph, and Victor Goodman 2001 The Mathematics of Finance: Modeling and Hedging Pacific Grove: Brooks/Cole Steinbeck, John 1939 The Grapes of Wrath New York; Penguin Group, 1986 Reprint Stiglitz, Joseph E 2015 The Great Divide: Unequal Societies and What We Can Do About Them New York: W.W Norton Taleb, Nassim 2010 The Black Swan 2nd ed New York: Random House Tangri, Om P 1966 Omissions in the Treatment of the Law of Variable Proportions American Economic Review 56(3): 484–493 Thaler, Richard H., and Cass R Sunstein 2008 Nudge: Improving Decisions About Health, Wealth and Happiness New York: Penguin Group Titmuss, Richard 1970 The Gift Relationship: From Human Blood to Social Policy, ed Ann Oakley and John Ashton, Rev ed 1997 New York: New Press Trouble in Worker’s Paradise 2013 The Economist, November 9, p 72 Tversky, Amos, and Daniel Kahneman 1979 Prospect Theory: An Analysis of Decision Making Under Risk Econometrica 47(2): 263–292 United States of Amoeba 2013 The Economist, December 7, p 30 Vanek, Jaroslav, and Juan Espinosa 1972 The Subsistence Income Effort and Development Potential of Labor Management and Other Economic Systems The Economic Journal 82(327): 1000–1013 Veblen, Thorstein 1899 Theory of the Leisure Class: An Economic Study of Institutions New York: The Modern Library, 1934 Reprt von Thünen, Johan 1826 Von Thunen’s Isolated State: An English Edition of Der Isolierte Staat Oxford, : Pergamon Press, 1966 Reprint Walras, Léon 1926 Elements of Pure Economics, 4th ed New York: Routledge, 2003 Reprint Weber, Max 1904 The Protestant Ethic and Spirit of Capitalism New York: Routledge, 2001 Reprint ——— 1921–22, posthumously Economy and Society, 4th ed Berkeley: University of California Press, 1978 Reprint Whyte, William F., and Kathleen K Whyte 1991 Making Mondragon: Growth and Dynamics of the Worker Cooperative Complex Ithaca: Cornell University Press Wilkinson, Richard G 2005 The Impact of Inequality New York: New Press Wilkinson, Richard G., and Kate Pickett 2009 The Spirit Level: Why Greater Equality Makes Societies Stronger New York: Bloomsbury Press Williamson, Oliver E 1985 The Economic Institutions of Capitalism New York: The Free Press ——— 2000 The New Institutional Economics: Taking Stock, Looking Ahead Journal of Economic Literature 38(3): 595–613 ——— 2002 The Theory of the Firm as Governance Structure: From Choice to Contract Journal of Economic Perspectives 16(3): 171–195 www.ebook3000.com INDEX A absolute advantage, 37–8 Adler, Moshe Economics for the Rest of Us, 125 agriculture See farming altruism, 12, 36, 84 American Economic Association, 13, 143, 155 anchoring effect, 94 Ariely, Dan, 75, 83 Upside of Irrationality, The, 74 aristocracy, 6–9, 17, 107 Arizmendiarrieta, Fr Don Jose Maria, 145–7, 151n1 assembly lines, 108, 121 assets, 141, 146, 149 financial, 3, 52, 141, 153, 161 and liabilities, 161 in marriage, 44–5, 55 non-financial, 115, 146 risky, 81–2, 162 autonomy, 13, 40, 57, 58, 69, 81 B Banerjee, Abhijit, 109 Poor Economics, 27, 109 bankruptcy, 51, 148, 161, 171 banks, 14n4, 123, 141, 155–6 basic need, 7, 9, 13, 23, 27, 69, 130, 142 health care as a, 139, 168 ranking of, 64 Becker, Gary, 44–5, 55, 107, 116, 122 behavioralism, 5, 70, 74–85, 110, 117, 167–8 Beinhocker, Eric, 146, 151, 163 Origin of Wealth, The, 63, 105 Bentham, Jeremy, 19, 28–9, 106–8, 140 See also Utilitarianism; utility analysis of utility, 57–8 Bernstein, Peter, 89 birth rates, 18, 106 Black-Scholes model, 155–7 Boulding, Kenneth E., 11 Note: Page numbers followed by “n” refers to notes © The Author(s) 2017 R.D Johnson, Rediscovering Social Economics, DOI 10.1007/978-3-319-51265-5 183 184 INDEX Bradley, Elizabeth H American Health Care Paradox, The, 51–2, 168 Buffet, Warren, 88, 142, 151 Bush, George H W., 52 C Cairns, John E., 105 See also Institutionalism Cameron, Rondo Concise Economic History of the World, A, 113 capital, 17, 130, 143, 146 See also wealth human, 112–13, 135, 142, 148 physical, 148 capitalism, 4, 17–19, 88, 141, 153, 165 Catholic Church and teachings, 47, 145, 147 See also Arizmendiarrieta Charity See wage, non-wage income CITI group, 153, 154, 161, 162, 166, 169 Clark, John Bates, 121, 143 Distribution of Wealth, 121 Studies in the Economics of Overhead Costs, 143 Clark, John Maurice, 143, 146, 166 classical economics, 13, 17, 19, 20, 57 Coase, Ronald, 159 Coase’s theorem, 159 Colbert, Jean-Baptiste, Colbertism, Cold War, 71 Colliers, Paul, 171 Commensurability, 58 non, 19, 59, 64 commerce, 6, commodity, 6, 17, 84, 89, 159, 160 broker, 157 trader, 162 communism See socialism competition imperfect, 130, 136 perfect, 25, 99, 129, 133, 142, 166 Conard, Edward, 138, 140, 155, 168 Unintended Consequences, 138 Upside of Inequality, The, 138 conservatives, 22–3, 28, 46, 168 conspicuous consumption, 69 consumers, 130, 154, 158–60, 170 behavior of, 51, 93, 123 decision-making of, 31, 59, 66, 95, 122 role of in market, 88, 96, 99–100 surplus, 61–3, 65, 87, 156, 158, 160 contracts, 44–5, 55, 82, 137, 158 cooperatives See Mondragón Cooperatives corporations, 80, 107–8, 149 cost of living, 17, 50, 87 crime, 39, 52, 71 Crusoe, Robinson as economic allegory, 33–40, 46, 61, 172 D Deaton, Angus, 14, 51, 100, 136, 168–9 Great Escape, The, 14 Defoe, Daniel, 33 See also Crusoe, Robinson Robinson Crusoe, 33 demagogues, 12 Democracy, 12, 25, 147 depression (economic), 155 See also Great Depression, The Dubner, Stephen, 13, 172 Freakonomics, 172 Duflo, Esther, 27, 109 Poor Economics, 109 Dunlop, John, 105 www.ebook3000.com INDEX E economic development, 27, 66, 112, 116 economic instability, 87, 166–7 Edgeworth, Francis Y., 28, 60–1 education, 14, 49, 76, 113–14, 139, 167, 169 efficiency See also Mondragón Cooperatives; Pareto Improvement; Pareto Optimality analysis, 126–30 criteria, 35 definition of, 41–2, 48, 146 in labor markets, 118, 135, 142 and laws, 44–5 in markets, 25–6, 62, 65, 107, 155, 160–3 myth of, 162, 166 Neoclassical view of, 85, 168 non-market, 115 results of, 155 empathy, 10, 22, 27–8, 58, 171 See also morals; Smith, Adam, Theory of Moral Sentiments, The employment, 10, 21, 23, 25, 61, 171 See also Great Depression, The; labor sustainable, 146 unemployment, 136–42, 147, 165, 167–8 enclosure movement, 7, 10 See also farming ENRON, 150 equilibrium See also labor, market equilibrium; neoclassical economics, equilibrium model achieving, 4, 28, 74, 91, 95 analysis, 32, 108, 123, 156, 160, 163, 172 conditions, 31, 60, 64, 89, 96, 99, 129 disequilibrium, 108, 141, 165 185 ideal of, 81, 93, 98, 99, 153, 166, 169 in labor market, 136, 137–42 model, 74, 89–91, 93–9, 109, 128, 134, 156, 161, 167 outcome, 100 point, 4, 96, 100 price, 93, 98 exchanges, financial, 156 F FAGOR, 148 See also Mondragón Cooperatives Farber, Henry S., 110 farming, 7, 10, 21, 141 crops, 7, 157–8, 160 Federal Reserve, 82, 154 Feudal system, Force, Pierre, 11 Self-Interest Before Adam Smith, 11 fungibility, 63, 159 G game theory, 70–4, 85 Gini coefficient, 48, 53 goods, 19, 32–9, 58–65, 69, 91–3, 122, 156–9 distribution of, 42 higher-ordered, 31–2, 64 leisure, 116 lower-ordered, 31–2, 64, 159 luxury, 7, 107–8 market, 115 private, 36–7, 39, 44, 51, 170 public, 35, 39, 44, 49–51, 59, 62, 170–1 ranking of, 31, 58 (see also Maslow’s hierarchy) and services, 42, 49, 61, 106, 109, 115 social, 49 186 INDEX government involvement, 10, 82, 100, 113, 140, 156 Great Depression, The, 52, 70, 88, 115, 123, 141, 165 Great Recession of 2008, 52, 82, 162, 166 Institutionalism, 105 institutionalists, 105–6, 111, 121, 135–6 New Institutionalists, 146 interest rate, 114, 156 H Haidt, Jonathan, 46, 48, 74, 93, 163 moral foundations, 22–5, 27, 76, 84, 140–1, 167 headless stickman model, 93, 133–4, 139, 156, 165 health care on individual level, 39, 171 insurance, 50, 137, 170–1 public vs private, 51–2, 138, 170–1 as a social issue, 5, 14, 36, 167, 169 homo economicus See also self-interest and Neoclassical economists, 58, 123, 129 and Smith, Adam, 13 J Jefferson, Thomas, 21 Jevons, William S., 28, 65 marginal utility model, 60–6, 76, 122 Sunspot Theory, 88 justice commutative, 25–6, 42, 142 (see also Pareto Optimality) concept of, 5, 17, 21, 42, 141 distributive, 27, 38, 51, 72, 142 I immigration, 118 income See wage industrial revolution, 17, 19, 105, 113 inequality access to education, 113 CITI group memos, 154, 161 (see also CITI group) driving economic growth, 138, 154 (see also Conard, Edward) effects of, 48–52, 151, 171 Great Depression, 52, 70 patterns of, 5, 52, 166, 167 sources of, 48 views of, 48 K Kahneman, Daniel, 74, 75, 77 Think, Fast and Slow, 75 utility function model, 77–9, 82–3, 109, 117, 137, 171 Keynes, John Maynard, 136, 165 L labor See also neoclassical economics, labor market equilibrium child, 19 cost-cutting of, 148–9 costs, 127, 129 demand for, 121–31, 136, 140, 168 force, 8–10, 112–13, 116–18 (see also capital, human) homogeneity of, 118, 121, 135, 137, 145 labor-leisure choice, 108–12, 140 www.ebook3000.com INDEX laws, 105, 137 market, 7, 10, 82, 105, 107–8, 110–16, 118–19, 133, 171 market equilibrium, 121, 133–44 mobility of, 10–11, 117–18 shortage, 138 skilled/skills, 8, 21, 113, 119, 133, 135, 140 supply of, 7, 18, 35, 105–20, 168 women in labor market, 113, 116 Laffer, Arthur, 138 law of variable proportions, 122–3 leisure, 80, 106–14, 116, 122–3, 140, 168 See also Veblen, Thorstein, Theory of the Leisure Class Levitt, Stephen Freakonomics, 12–13, 172 liberals, 22–3, 28, 46 liberal-conservative dichotomy, 23, 169 Libertarians, 14n4, 19, 23, 26, 28, 163 Locke, John, 21, 33, 37, 159 Lucas, Robert E., 42, 155, 161 Lucioni, Renzo, 24, 28, 169 M Macroeconomics, 165 Malthus, Robert, 18, 106, 112 Manufacturing class See merchant class Marginalism See also utility Jevons’s marginal utility model, 122 marginal behavior, 123–4 Marginalists, 28, 31 marginal productivity, 121–8 marginal utility, 59–65, 76, 77, 88, 91, 122, 124, 158 Market competitive (see also perfect competition) Market behavior, 26, 60, 88–100, 113 187 competitive, 65, 99, 128, 137, 146, 165 equilibrium (see equilibrium) exchange, 17, 33, 42, 47, 57, 61, 63, 65, 83, 85, 87 failure, 5, 96, 100, 136, 139, 143, 151, 163 (see also market: imperfection) fluctuations, 156 free, 8, 12, 25, 44, 87, 166 imperfection, 28, 99, 134, 136, 137, 142, 143 primary, 111, 135, 136 role of, 85, 93 secondary, 111, 136 segmentation, 111, 116 speculation, 70, 156, 160 value, 9, 26, 42, 43, 50, 159, 160 volatility, 81, 88, 156 marriage, 44–7, 55 Marriage, 44–5, 47, 55 Marshall, Alfred, 61, 65, 87–8, 126 Marx, Karl, 18, 87–9, 121, 141 Maslow, Abraham, 31, 35, 36, 64 Maslow’s hierarchy, 32, 59–60, 64, 118, 159 Maslow’s hierarchy, 32, 64, 118 Menger, Carl, 31–2, 59–60, 63–5, 76, 159 Principles of Economics, 31 mercantilism, 6, 8–9, 17 merchant class, 6, 7, 9, 106–7 microeconomics, 5, 170 middle class, 3, 53, 107, 109, 116, 142, 154 Mill, John Stuart, 19, 58–9, 64, 88, 96, 143, 145–6 On Liberty, 19 Principles of Political Economy, 19 moderates, 22 Modernism, 20, 28 Mondragón Cooperatives, 5, 143, 145–52 188 INDEX monopolies, 7–8, 83, 130 morals See also self-interest; Smith: Theory of Moral Sentiments, The choices, 20, 76, 83–4 constraints, 39 Haidt’s moral foundation, 22–5 lack of, 5, 162, 172 philosophy, 4, 12, 19, 20 pushing back markets, 84–5 role in economics, 12, 13, 17–29, 46, 163 mortality rates, 7, 49, 50, 117 mortgage, 77, 161 Mutually Assured Destruction (MAD), 71, 72 N National Center for Employee Ownership (NCEO), 149 natural law, 25, 21 Neal, Larry Concise Economic History of the World, A, 113 needs See basic needs neoclassical economics assumptions of, 4, 5, 65, 66, 74, 95, 98–9, 146 criticism of, 69, 70 and demand for labor, 121–31, 136, 145, 148 and efficiency, 85, 168 emphasis on mathematical analysis, 88, 89 emphasis on value-free analysis, 4, 20, 25, 32, 41, 65, 66, 109, 167 equilibrium model, 74, 88–91, 95–100, 108, 135, 156, 161, 165–6 and Haidt’s moral foundations, 25 and homo economicus, 13, 28, 83–5, 123, 127 (see also homo economicus) and human choice, 57 and labor market equilibrium, 135, 139–43 and marginal utility analysis, 60–5, 158 and maximizing market value, 42–3 and self-interest, 36, 40, 58, 83–5 (see also self-interest) and supply of labor, 106–12, 117–18, 168 and welfare economics, 99 and work-leisure model, 110, 116, 168 O Occupy Wall Street, 162 Ohio Employee Ownership Center (OEOC), 140 opportunity cost, 33–5, 38, 106 optimization, 4, 60, 71, 98, 130 P Pareto Improvement, 43, 44, 47 Pareto Optimality, 42, 45, 50, 143, 158, 165, 168 Pareto, Vilfredo, 41, 60, 61 Pareto Improvement, 43, 44, 47 Pareto Optimality, 42, 45, 50, 143, 158, 165, 168 peasants See poverty: in feudal system perfect competition, 25, 99, 129, 130, 133, 136, 142, 166 Physiocrats, 10 Pickett, Kate, 48, 49 Spirit Level, 49 Pigou, Arthur C., 58, 62 Piketty, Thomas, 14, 100, 166, 169 Capital in the Twenty-First Century, 14, 166 plutonomy, 5, 153–5, 166, 169, 171 www.ebook3000.com INDEX policy, 25, 52, 53, 100, 106, 143, 147, 157 makers, 8, 133, 143 public, 43, 96, 142 population, 18, 100, 112, 118 postmodernism, 39 poverty See also employment: involuntary unemployment; inequality; justice; redistribution alleviating, 80, 107, 172 causes and nature of, 9, 18, 27, 140 escaping, 9, 14, 107 (see also middle class) in feudal system, individuals living in (the poor), 26, 80, 84, 109, 110, 167–9, 171 Poor Law Reforms of 1834, 106 psychology of, 66, 77–80, 117 rising, 45, 47 as a social issue, 3, 5, 13, 18, 163, 172 price discrimination, 130 principle of comparative advantage, 37–8 productivity, 7, See also efficiency: in labor markets agricultural, 88 and capitalism, 18–19, 88 employee, 114, 137, 147, 149 and industrial revolution, 19 marginal, 121–31 (see also utility) as solution to poverty, 9, 18–19 profit business, 156 donating, 147 and economic progress, 17–18 and insurance companies, 51 and management compensation, 151 margin, 69 maximizing behavior, 9, 98, 123, 143 maximizing firm, 127–30, 146–9 as a means to an end, 146 189 and merchant class, in a plutonomy, 153, 155 for profit, 113, 121 satisficing, 69, 129 and wages, 7, 9, 17, 143, 171 property rights, 19, 21, 27, 159 psychology field of, 65, 74, 168 reasoning behind, 65, 66 (see also behavioralism) public choice, 66 public safety, 6, 35, 39, 52 See also crime Public Work Houses, 106 R rationality, 20, 76, 82, 167 in Bentham’s analysis of utility, 57–8 irrationality, 74–5, 81–2, 133 Reagan, Ronald, 25, 52, 138–9, 154, 167 redistribution, 42, 46–7, 80, 160 See also inequality relative distribution, 36, 41–2, 48–9, 53, 136, 143 relief, public, 106 Ricardo, David, 17–18 rich See wealthy risk assessment of, 51, 76, 80–1 aversion, 79, 81, 156 and crime, 39 health, 39, 171 on the job, 116–17 and labor force, 118, 138 premium, 117 response to, 76, 89 and stock market, 161–2 taking, 3, 78–82, 156, 160 Robinson Crusoe See Crusoe, Robinson 190 INDEX S Sandel, Michael, 55, 84 What Money Can’t Buy, 83 savings, 107, 114, 154 scarcity, 6, 31–40, 45, 64, 84 self-interest, 12–13, 31–40, 66, 71–4, 83 See also homo economicus according to Smith, Adam, 10–12, 28, 151 under Neoclassical model, 41, 58, 146 selfish passions See self–interest Sen, Amartya, 11, 42, 100, 166 Smith, Adam background, 6, 10 critics of, 17, 163 and distributive justice, 27 and empathy, 13, 21–2, 27–8, 58, 171 and government involvement in markets, 10, 82 Inquiry into the Nature and Causes of the Wealth of Nations, 6, 8–12, 93, 133 and labor/work, 106, 108, 117–18, 134–5, 143, 168 Lectures on Jurisprudence (B), 21, 27 Lectures on Philosophical Subjects, 94 misinterpretations of, 4–5, 9, 10, 12, 13 natural law, 21 and poverty, and self–interest, 11–12 (see also selfinterest) and social passions, 13, 28 and social welfare, 13–14, 18, 41, 51 Theory of Moral Sentiments, The, 10–11, 147, 172 Smith, Vernon, 74, 75 socialism, 18, 141, 165, 172 social passions See self–interest sociology, 19, 65, 74, 168, 172 solidarity, 47, 147, 148 standard of living, 80, 107 state of nature, 21, 33, 159 See also natural law status (social), 69, 111, 114 Steinbeck, John, 123, 141–2 Grapes of Wrath, The, 123, 141 stock, 148–50, 161 exchange, 114 market, 161 Sunspot Theory, 88 supply and demand, 106, 140 supply side economics, 52, 138, 155 T tax, 6–8, 47, 49, 138, 151, 170–1 break, 80 capital gains, 52, 151, 154 Corn Laws, 17 federal income, 52 health care, 169–71 optimal, 99 progressive income, 19, 49, 138 revenue, 7–8, 44, 138 social security, 7, 53 Thaler, Richard, 74, 100 Thatcher, Margaret, 52, 138–9, 167 Titmuss, Roger, 84 trade, 7, 9, 37 traders, 82, 157, 160, 162 transaction cost, 136, 156–7, 159, 160 U ultimatum game, 84 unemployment, 119, 139–42, 147, 167, 168 involuntary, 136–41, 167 (see also poverty) voluntary, 168 usury, 156 www.ebook3000.com INDEX utilitarianism, 19–20, 28, 57–9, 106, 107 utility Bentham’s analysis of, 57–9 definition of, 57–8 of goods, 69 interchangeability of, 19 (see also commensurability: non–) Jevons’s model, 59–60, 63, 65, 121 Kahneman’s model, 75–7, 80, 82–3, 109, 137, 171 marginal utility analysis, 59–65, 76, 77–80, 158–9 maximizing, 58, 66, 91, 98, 123 Menger’s model, 59–65 work–leisure balance, 106–8, 116, 168 utopia, 18, 172 V Veblen, Thorstein, 69–70, 74, 108–9, 116 Theory of the Leisure Class, 69, 108 von Thünen, Johan von Thünen circles, 97 W wage, 9, 17–18, 105–14, 116–17, 133–43, 146 discrimination, 136 equilibrium, 133–5, 137 iron law of, 18 minimum, 109 191 nominal, 17 non-wage income, 18, 106–7, 109, 113–14, 135 real, 9, 10, 17–18, 50, 116, 139, 168–71 reservation, 106, 136, 137 subsistence level, 18, 80, 105, 143 Walras, Léon, 28, 60, 87, 121–2 Elements of Pure Economics, 28 wealth, 9, 26, 48, 53, 76, 136, 151, 162 See also economic growth; Smith: Inquiry into the Nature and Causes of the Wealth of Nations, An affluence, 3, 7–8, 80, 118, 130 of individuals, 3, 107, 109, 114, 116–18, 142, 153–5, 162 under Smith’s model, 9, 17 social, 9, 114–15 of a society/nation, 8–9, 17, 143, 168 under Veblen’s model, 69–70, 116 Weber, Max, 48 welfare program, 51–2, 139 public system, 167 reform, 63, 142 Wilkinson, Richard G., 48–9, 52 Impact of Inequality, 48 Spirit Level, 48 work See labor workfare reforms, 168 working class improving conditions of, 17 struggles of, World War II (WW II), 88, 112, 165 ... www.ebook3000.com Roger D Johnson Rediscovering Social Economics Beyond the Neoclassical Paradigm Roger D Johnson Mechanicsburg, Pennsylvania USA Perspectives from Social Economics ISBN 978-3-319-51264-8... of social economics in relation to orthodox and other heterodox approaches to economics By furthering these goals, this series will expose a wider readership to the scholarship produced by social. ..Perspectives from Social Economics Series Editor Mark D White City University of New York College of Staten Island, Staten Island, USA The Perspectives from Social Economics series incorporates