Alfred Marshall and Mary Paley (p. 66 -- first mentioned). Cambridge.
"In contrast to the majority of Victorian intellectuals, Marshall admired the entrepreneur and the worker. Carlyle, Marx, and Mill considered modern production to be an unpleasant necessity, labor to be degrading, and debilitating, businessmen to be predatory and philistine, and urban life to be vile. Mill considered Communism superior to competition in every respect but two (motivation and tolerance for eccentricity) and looked forward to a stationary, Socialistic state in the not very distant future. But none of these intellectuals could claim the familiarity with business and industry that Marshall was acquiring." -- he had recently returned from a trip across the United States. -- p. 81
Nasar contrasts Marshall's studies of factories and business (fanatical) vs Dickens and Marx (none). Marx had never been inside a factory; Dickens only saw the outside of a factory, watching workers trudge in, day in and day out but he never saw the inside of a factory either.
"For Dickens and Marx, firms existed to control or exploit the worker. For Mill they existed solely to enrich their owners. For Marshall, the business firm was not a prison. Management wasn't just about keeping the prisoners in line. Competing for customers (or workers) required more than mindless repetition...." -- p. 83.
Chapter 3
All about Beatrice Potter, socialist.
Marries Sidney Webb.
Publishes The Minority Report.
"Lord William Beveridge, the eponymous author of the 1942 Beveridge Plan who worked on The Minority Report as a researcher, later acknowledged that his design for the post-WWII British welfare state 'stemmed from what all of us had imbibed from the Webbs.'" -- p. 138.
Marshall and Paley: The Economics of Industry, 1879.
Marshall's most important discovery: competition raised productivity.
Henry George, 1880's, "land tax" -- property tax?
The 1880's: a period of financial and economic crisis. The term "unemployment" was coined during the recession that followed the Panic of 1893 during a heated debate over whether real wages were rising or falling in the long run. -- p. 86
1884: first public debate between Henry George and Alfred Marshall.
"Marshall did not object to unions or even to some fairly radical proposals for land reform or progressive taxation. He merely noted that none of these could produce 'more bread and butter.' This required 'competition,' time, and the cooperation of all parts of society, government, and the poor themselves." -- p. 89
Marshall: Principles of Economics, 1890. The book breathed new life into a faltering discipline. Principles: rejected Socialism; embraced the system of private property and competition; embraced optimism about the improvability of man and his circumstances. The chief insight he learned in America: under a system of private property and competition, business firms are under constant pressure to achieve more with the same or fewer resources. From society's standpoint, the corporation's function is to raise productivity and, hence, living standards.
Marshall: of all social institutions, the business firm was more central, enjoyed a higher status, and did more to shape the American mind and civilization than elsewhere. The company was not only the principal creator of wealth in America but also the most important agent of social change and the biggest magnet for talented individuals. It made Dickens' depictions of businessmen as cretins or predators, workers as zombies, and successful manufacturers as rigid repetition look ridiculous. -- p. 89 - 90.
Chapter 4
The phenomenal rise of the United States from the beginning of the 19th century to the end of the 19th century.
Remington (1816), Singer (1815), Standard Oil (1870), Diamond Match (1881), and American Tobacco (1890) were born. The era of mass distribution, mass production, and scientific management -- big business, in short -- had arrived. The Webbs visit the US during this period. Between 1880 and 1890, the annual income generated by America's largest industries quadrupled. Income from printing and publishing in the US jumped fivefold, machinery and malt whisky, fourfold; iron and steel and men's clothing, threefold. Electrification, refrigeration, new cigarette making, milling, distilling and other machinery, entirely new industries based on products derived from oil and coal, the extension of rail, and telegraph links to virtually every community produced a revolution in scale, structure, and reach of American firms. -- p. 141
"The money question" -- p. 158; how money became the paramount issue of the 1896 presidential campaign.
The story of Irving Fisher.
A nice summary, pp 169 - 170.
Beatrice Webb invented the welfare state ...
Irving Fisher was the first to realize how powerfully money affected the real economy and to make the case that government could increase economic stability by managing money better. By pinpointing a single common cause for the seemingly opposite ills of inflation and deflation, he identified a potential instrument -- control of the money supply -- that government could use to moderate or even avoid inflationary booms or deflationary depressions.
Chapter 5
Joseph Schumpeter and Gladys Ricarde-Seaver.
Turn of the century, born in what is now Czech Republic. Contemporary of Einstein. British. Anti-Malthus. Productivity based on human potential, not country's natural resources. It's what a country does with its resources that is important. About 28 years old when he made his name; visited US; a sabbatical at Columbia University, New York; toured US, returning to Vienna in 1914.
The American Civil War and the resulting cotton famine turned Cairo into a Klondike on the Nile. Egypt's ruler, the khedive Ismail Pasha, seized the opportunity to turn the whole country into a giant state-owned cotton plantation. As British trade with Indian grew.... p. 180
Schumpeter: completed the manuscript of The Theory of Economic Development in May, 1911 -- ended up in America.
There was talk of war. Fisher thought countries too financially interdependent for war.
ACT II
FEAR
Prologue
War of the Worlds
Keynes sent the painter Duncan Grant, his former -- and Vanessa Bell's current -- lover, a triumphant telegram.
War of the Worlds
WWI. Beatrice Webb's stock (as a socialist) continues to fall. John Maynard Keynes, Bloomsbury.
Keynes buys up French art for the National Gallery (and for himself). Edgar Degas, who had been an art dealer before he devoted himself full-time to painting, had amassed hundreds of works by Manet, Corot, Ingres, Delacroix, and other contemporary artists over his long career, rarely parting with a single canvas. This treasure trove was to be auctioned off at the Galerie Roland in Paris on March 26 and 27.
Keynes buys up French art for the National Gallery (and for himself). Edgar Degas, who had been an art dealer before he devoted himself full-time to painting, had amassed hundreds of works by Manet, Corot, Ingres, Delacroix, and other contemporary artists over his long career, rarely parting with a single canvas. This treasure trove was to be auctioned off at the Galerie Roland in Paris on March 26 and 27.
Keynes sent the painter Duncan Grant, his former -- and Vanessa Bell's current -- lover, a triumphant telegram.
Frank Ramsey: at age nineteen Ramsey wrote a criticism of Keyne's thesis on probability so devastating that Keynes gave up any notion of a mathematic career. He was drafted to revise the Principia Mathematica, Bertrand Russell and Alfred North Whitehead's prewar attempt to reduce all of mathematics to a few logical principles.
Virginia Woolf, The Voyage Out, 1915, and Mrs Dalloway.
Chapter VI
The Last Days of Mankind: Schumpeter in Vienna
Armistice was announced November 11, 1918.
Vienna and Austria after the war. The political demise of Schumpeter.
Fascinating, if somewhat boring economic look at Austria in between wars. Explains a lot. Every European country (and the US) celebrated at the end of WWI except Austria -- it was a shadow of itself after the war. Every country lost in WWI but Austria was the biggest loser.
Chapter VII
Europe Is Dying: Keynes At Versailles
A good chapter for understanding / learning about Keynes.
Chapter VIII
The Joyless Street: Schumpeter and Hayek in Vienna
The 1920s: Joseph Schumpeter, Friedrich Hayek, John Maynard Keynes, Irving Fisher
Keynes and Fisher became economic oracles
1918: Hayek, corporal in the k.u.k army; young soldier in multi-national army; swept along by a disintegrating Hungary-Austrian army, finally ending up in Vienna; gave up a dream of becoming a diplomat; enrolled as a law student at University of Vienna; completed his doctor of laws degree in the spring of 1922, at the height of the hyperinflation; another contemporary of Einstein; his salary rose from 5,000 kronen to 1 million kronen in the space of 9 months; Bolsheviks' "lightning socialization" caught his attention; most urgent question, "Could socialism work?" Hayek's mentor, Ludwig von Mises, argued against central planning.
Hayek, 1923 - 24: New York University, Greenwich Village, research assistant to Jeremiah Whipple Jenks, a currency expert on the Allied Reparation Commission who had confirmed Beatric Webb's prejudices about Americans. Hayek's main motive for coming to New York was to learn as much as he could about American thinking about booms and depressions. Business cycle research suggested to him by Von Vises. In his April 1929 newsletter, Hayek noted corporate borrowing was growing faster than production in the United States and warned of "unpleasant consequences." That observation led Robbins subsequently to credit his protege with prophesying the 1929 stock marcket crash. In fact, Hayek's alarm was transitory. In his October 1929 newsletter, he reassured readers that neither "a sudden breakdown of the New York Stock Exchange" nor a "pronounced" economic crisis were imminent." Chapter ends.
Chapter IX
Immaterial Devices of the Mind: Keynes and Fisher in the 1920s
The Bloomsbury group -- p. 282
Keynes: tried to show that inflations and deflations made it difficult for investors and businessmen to calculate the effects of decisions and, to a much greater degree than the public appreciated, distorted decisions to save or invest. Strong proponent of regulation/intervention; agreed with Fisher: "We can no longer afford to leave [things to nature]." The evil of inflation was that it redistributed existing wealth arbitrarily, pitting one group of citizens against another, and, ultimately, undermining democracy. The evil of deflation was that it retarded teh creation of new wealth by destroying jobs and incomes.
Again and again, Keynes stressed his main message, namely, that there was a remedy: "The remedy would lie ... in so controlling the standard of value that, whenever something occurred which, left to itself, would create an expectation of a change in the general level of prices, the controlling authority should take steps to counteract this expectation." And failure to make money the "subject of deliberate decision" would leave a dangerous vacuum in which "a host of popular remedies ... which remedies themselves -- subsidies, price and rent fixing, profiteer hunting, and excess profits duties -- eventually became not the least part of the evils." -- p. 284
WWI wrecked the gold standard (previously controlled by the banks of London). -- p. 285
As a writer, Keyne's career in writing culminated in his becoming publisher of the left-wing political weekly founded by the Webbs and G. B. Shaw, the New Statesman.
Keynes, gets married. Anti-semitic. Visit to Russia. Potemkin village.
Fisher.
Eugenics.
Chapter X
Magneto Trouble: Keynes and Fisher in the Great Depression
The chapter begins: "Keynes spent the first half hour of every day in bed in London reading the financial pages and talking to his broker and other City contacts on the phone. But his daily research turned up no early warnings of the American stock crash of October, 1929."
His losses in commodity futures, converted Keynes into a value investor, convincing him that "the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes." [Sounds like something Warren Buffett would have said.]
This is a fun chapter to read in light of the US financial crisis in 2008.
The depression:
As often happens with novel doctrines, most of the measures urged by Fisher and Keynes, except for the abandonment of gold, were not adopted in either the UK or the United States. Still, in England, the worst was over by August 1932, when the economy began slowly expanding. By 1937, Japan's economy had been growing for a half dozen years. In Germany, where the economic collapse was as bad as in the United States, unemployment had virtually disappeared by 1936. Keynes notd the bitter irony of Nazi Germany and Fascist Italy achieving full employment by engagement in massive deficit spending, repudiating their foreign debts, and letting their currencies depreciate. The same was true of Imperial Japan. Of course, the goal of these governments was to wage war and to pay off their debts by exploiting their victims.
In the United States, however, the depression had come roaring back with a vengeance in 1937 -- largely, it seems, because of blunders by the administration (FDR) and especially by the Federal Reserve. In 1936, after three years of recovery, FDR raised taxes and scaled back spending on New Deal programs such as the WPA. A onetime bonus payment to WWI veterans on June 1936 briefly pumped up the federal deficit, but federal spending fell sharply thereafter. Meanwhile, the Social Security Act of 1935 created a payroll tax that began in 1937. Together these two ill-timed actions brought the federal budget into virtual balance by late 1937.
Chapter XI
Experiments: Webb and Robinson in the 1930s
Global depression and why the Soviet experiment attracted English economists.
A great biographical sketch of Joan Robinson. In another age, she would have been a darling of the US left.
Important chapter to read to understand the lure of the Soviet Union during the global depression.
Chapter XII
The Economists' War: Keynes and Friedman at the Treasury
The introduction to the story of Milton Friedman:
John Kenneth Galbraith, a farm boy from Canada who looked and sounded like an English lord, liked to say that Kenynes's ideas came to Washington via Harvard. But it would be more accurate to say that they had also come by way of the University of Wisconsin, Columbia, the City University of New York, MIT, Yale, and more often that not, the University of Chicago.
Milton Friedman, a recent Ph.D. from Chicago, did not attend the dinner with Keynes at Lauchlin Currie's house, but in 1941 the future leader of the anti-Keynesian monetarist revival of the Reagan years was nonetheless one of the brightest young Keynesians in the Treasury. And, as it it happens, he did more than most to make Keynesianism practically feasible in the United States. -- p. 364
Friedman: a Keynesian; thought up "income tax withholding" to pay for WWII.
Chpater XIII
Exile: Schumpeter and Hayek in World War II
Short chapter; did not interest me.
Act III
Confidence
Prologue
Nothing To Fear
Keynesians never run out of reasons for government deficit spending. LOL.
How Stalin misread capitalism: Stalin as a genuine captive of Lenin's primitive economic theory, a theory based on a false analogy between economic competition and warfare.
Chapter XIV
First and Future: Keynes at Bretton Woods
The purpose of the Bretton Woods conference was to revive world trade and stabilize currencies and to deal with war debts and frozen credit markets. The war had left much of the world dramatically poorer, and countries had to be able ot earn their way back ot prosperity. In the broadest sense, salvage meant rebuilding and reconstruction, moving back toward pre-1913 globalization, but without reviving the pre-World Ware assumption that the economic machinery worked automaitcally.
Chapter XV
The Road from Serfdom: Hayek and the German Miracle
The sensational success of The Road to Serfdom, Hayek.
"Keynes and Hayek never fully resolved their long-running debate over how much and what kind of government intervention in the economy is compatible with a free society. Nonetheless, Keynes endorsed The Road to Serfdom and nominated Hayek, rather than his disciple Joan Robinson, for membership in the British Academy. When Keynes's heart finally gave out on april21, 1946, Hayek wrote to Lydia that Keynes was "the one really great man I ever knew, and for whom I had unbounded admiration." -- p. 402
Chapter XVI
Instruments of Mastery: Samuelson Goes to Washington
Post-WWII in America.
FDR, Truman, Kennedy. Nixon: we are all Keynesians now.
Chapter XVII
Grand Illusion: Robinson in Moscow and Beijing
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