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Tom Palven
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A Brief History of Economics
Dec 18th, 2013 at 7:07am
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Economic decisions have existed since cave people began determining how much meat or berries were worth a spear point or arrowhead. Somewhere along the line they discovered that if some people speciailized in making arrowheads and traded for meat, and vice-versa, that both groups could profit from the exchanges, each having more food, raising their standard of living.

Various media acted as money to facilitate exchanges of goods and services, including arrowheads, stone beads, salt, and metals. Most civilizations settled on metals as mediums of exchange, including gold, sillver, and copper. In 1776 a Scotsman named Adam Smith, usually considered to be the father of the science of economics, described how economic exchanges took place in his book The Wealth of Nations.

Smith noted that economic activities taking place in the British Isles, people supplying meat and vegetables, lumber, insurance for cargo on ships at sea, etc, were guided by a kind of spontaneous order. He said that it was if an "invisible hand" decided how many people became bankers, lawyers, farmers, and so on, and how much of such commodities as wheat or turnips were produced.

He noted that while "restraint of trade" like the tariffs or import quotas on foreign goods such as wool and textiles desired by farmers and trade unions, might allow those special interests to to increase their profits, but by reducing the benefits of specialization and trade, protective measures reduce the wealth of societies as a whole, ie, reduce the "wealth of nations." In arguing against government intervention in economic activities, Smith was essentially arguing against macroeconomics, although that term had not yet been invented.

Modern macroeconomics, the theory that governments should manipulate taxing and spending policies in order to create thriving and stable economies, is often credited to John Maynard Keynes (1883-1946), who is widely described as the Father of Macroeconomics. His books include The End of Laissez-Faire (1926).

In 1971 when President Richard Nixon took the US dollar, the world's reserve currency, off what remained of the gold/silver standard, he is reputed to have said "We are all Keynesians now."

The removal of the US dollar from the discipline of the gold/silver reserve requirement allowed for easy expansion of US government spending. Easy money and an easy-money attitude may have facilitated the creation of banking innovations such as derivatives and the explosion of federal, state, and local bond issues backed by the full faith and credit of such entities as the Federal Reserve, Detroit, Los Angeles, etc.

In the forty years since Nixon declared us to be Keynesians the US has run up huge budget deficits made even larger recently by "economic stimulus packages," and has resorted to "quantitative easing" (formerly called "currency debasement") printing money to try to get the economy "moving again," besides raising money by selling bonds (IOUs) to people who are not Keynesians, including you, me, and the Chinese government.

Mainstream economists in the US blame Bush policies, Obama polices, the voters, Congress, 9/11, Hurrican Katrina, global warming, and other things for US economic stagnation, but Keynesian macroeconommics remains a Sacred Cow, and gets none of the blame. We are told that the problem is that we need more of it. More taxes and more spending. Eventually, we might begin to wonder whether Adam Smith's advice wasn't better than the advice of economic planners plodding toward a central command economy.

  
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Shiva_TD
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Re: A Brief History of Economics
Reply #1 - Dec 19th, 2013 at 7:00am
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A very interesting subject for many that haven't taken the time to understand much of what goes on economically or how our modern economic systems evolved. Of course in such a short overview much is omitted which is relevant so we really should address some of the specifics related to what's presented. This can only be done piece by piece so let's address the earliest "division of labor" in primative economic societies which was presented by the following.

Tom Palven wrote on Dec 18th, 2013 at 7:07am:
Economic decisions have existed since cave people began determining how much meat or berries were worth a spear point or arrowhead. Somewhere along the line they discovered that if some people speciailized in making arrowheads and traded for meat, and vice-versa, that both groups could profit from the exchanges, each having more food, raising their standard of living.


Yes, this is very true but we must also understand the earliest context. This was not "trade" but instead a social community sharing all of what was produced by the community. In today's economic jargon it would equate to pure "communism" as everything, regardless of individual source, was shared by the community.

In many of these societies, such as Native-American societies, the "social leaders" didn't eat until everyone else was fed. The "leaders" were not economically "superior" to the rest of society and often were the ones that had to do without when there wasn't enough to go around.

In these societies the hunters and gatherers furnished food to the entire village and the "bow and arrow" makers furnished "bows and arrows" to the entire community. If the hunter needed "arrows" they went to the "arrow" maker and was given the "arrows" they needed. There was no exchange between the two. It was about everyone sharing for the benefit of the group. There was no "trade" as nothing was being traded.

Even the exchanges between similar groups (tribes) was often a matter of gift giving as opposed to trading. When trade did occur it was never about "profiting" from the exchange as one person might "trade" obsidian used for arrowheads for animal hides to make clothes and shelter but they didn't return to their village to trade the hides for more obsidian but instead to share the hides with their group. There was no "profit" in the exchange of goods.

This predates "capitalism" where an individual attempt to exchange goods for a profit that only benefited the individual and not the society as a whole. It was based upon the society benefiting and not the individual benefiting. The "capitalist" didn't enter the picture until much later.

It is a point worth remembering as "economics" was not initially established based upon a "profit motive for the individual" but instead was based upon a "profit motive for the society" as a whole. The society benefited which, in turn, allowed everyone to acquire a better standard of living uniformly. There wasn't a division of wealth between the individuals.

It would be from this earliest economic foundation that we would then next be able to address the introduction of "capitalism" that focused on trade that benefited the individual. It was capitalism that introduced "wealth and poverty" into the economic systems of society.

This is not an argument against "capitalsim" but merely establishing the foundation for it's later development.

   
  
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