Philosophy
Course structure
Part 1 Western Philosophy (Mark Corner)
Part 2 Eastern Philosophy (Inge Verhoeven)
Philosophy: Lecture 1
Link between business/economics and philosophy
- Many Western business students rushed out to China to study Confucius in the 1990’s
- Many famous entrepreneurs/business tycoons have a background in Philosophy
George Soros
- Studied Philosophy (under Karl Popper)
- Worked low-wage jobs to pay the tuition fees
- ‘Broke the bank of England’ by foreseeing a devaluation of the pound and made millions
Firms appreciate people with a degree in Philosophy ( Thinking outside the box)
Many philosophers have been involved in economics
- John Locke
- Adam Smith
- David Hume
- Isaac Newton
-…
Economics is often based on a few philosophical ideas (that need questioning)
- How did money originate?
- What is a comparative advantage? Is this positive?
- What is the invisible hand, and does it really exist?
- Is getting into debt different for governments?
- Is it dangerous to be in the Eurozone?
- Why do farmers like bad harvests?
Adam Smith
- Scottish economist + professor of Moral Philosophy ( “The Theory of Moral Sentiments”)
- Lived from 1723 until 1790
- Friend of philosopher David Hume
- Part of The Enlightenment ( Intellectual/Philosophical movement)
- Famous for “The Wealth of Nations” ( View on economics was closely tied to view on
moral philosophy)
Most famous idea = “The Invisible Hand”
- Mentioned in his “Theory of Moral Sentiments” + “The Wealth of Nations”
- Unobservable market force that helps supply and demand of goods to reach equilibrium
- Even when the rich are being selfish, they at least provide work for others ( Consumption
creates jobs)
,- The butcher doesn’t sell meat to us out of benevolence, but because they need to money
- Selfish behavior at individual level becomes the foundation of a successful economy at
macro level ( Everyone benefits by acting in their own self-interest)
This system works if the invisible hand is just left to do its work
- Human/governmental interference with the system will only make things worse
- Self-interested individuals help society more
- Results in management of economy being taken out of human hands
This was all perfectly consistent with Enlightenment thinking
- Similar to advances in Physics produced by Isaac Newton ( Planets move because of an
unobservable force, not because of angels)
- Newton’s Law of Inertia A body in uniform motion will naturally remain in this state
unless acted upon by an outside force
- Creation of the idea of a self-sufficient system ( No interference from people or angels)
Same method of thinking is applied to the economy by Adam Smith
- No human/governmental interference with market forces ( “Visible hand”)
- The rich get rich and automatically help the poor
- Traders act in their own self-interest and help customers by doing so
- Concept of using ‘sin’ of individuals ( self-interest) to contribute to society as a whole
François Quesnay
- French influential economist
- Became a famous doctor first, then later turned to economics
Wrote “Tableau Economique”
- Describes how products of agriculture are being distributed among all classes of society
and how payments flow from one part of an economy to another
- Comparable to how blood circulates through organs/veins/arteries in the body
- Interference is necessary to keep the system working ( View of a surgeon)
- This is a contradiction to the idea of the invisible hand of Adam Smith
Is interference/intervention of economists necessary or should we leave things to the
invisible hand?
Ha-Joon Chang
- Korean economist
- Now lecturing at Cambridge
“Should we protect our infants?”
- We teach children to cross the road safely by holding their hand
- We should do the same with infant industries ( Protectionism)
- Protectionism is not always negative
- Contradiction to the idea of the invisible hand of Adam Smith
, Goes back to theories about the origins of trade
- Russians have a lot of open space, so they grow a lot of wheat
- Portuguese have a climate that makes for fine wines and cherry
- Each country concentrates on their specialty (and trades goods with other countries)
Supported by the concept of comparative advantage
- What you do best while also giving up the least
- When you’re good at multiple tasks, choose the one that will earn you the most money and
leave those other tasks to other people
- This means that even trading with countries that are worse at everything is beneficial for
both parties
After WWII, Korea became very poor
- They were told to start producing toys and cheap textiles to rebuild the economy
( Comparative advantage)
- They chose not to engage in the production of cheap toys and textiles
- With Japanese war reparations and US support/money, Korean brands became household
names within a generation
Chang’s vision on market interference
- State has to support investment in the latest technology
- Even when economy is far behind others
- Infant industries have to be protected to realize growth in the long run
- This protection means tariffs and quotas
Rise of Development Economics adds another twist
- Raul Prebisch & Hans Singer Singer-Prebisch Hypothesis
- Price of primary products declines relatively compared to price of manufactured goods in
the long run ( Disadvantage for producers of primary goods)
- Demand for coffee, bananas, etc. doesn’t change all that much over time
- Demand for new, high-tech manufactured goods is higher ( Leads to higher prices)
- Korea realized the demand for manufactured products can be boosted enormously, while
demand and prices in the primary products sector stay the same
Conclusion
- A lot can go wrong when protecting certain industries ( Corruption)
- Are (temporary) import controls and state aid a good way of developing the economy?
- USA protected many of its industries in the early 19th century and only turned to the idea of
‘free trade’ after becoming the globally dominant economy ( Kicking away the ladder)
, Philosophy: Lecture 2: Farmer Pete
- Continuation of discussion on the invisible hand
- Manipulation of supply and demand of food stock
The problem
- Grain = Seeds or fruits of various plants
- Grain prices are expected to keep rising during 2021
- Changes in the climate (+ Covid-19 Pandemic) are the main reasons
What will countries to counter this issue?
- Prioritization of the home market ( Export taxes/export quota’s)
- As a result, grain prices elsewhere start to rise even more
Demand for food is relatively inelastic
- If demand rises, prices of food rise too
- People tend to want the same amount of food from one year to another ( Same needs)
- Demand for certain foods may vary a little bit because of trends, health scares, …
- We can see a rise in the demand for beef as some countries become wealthier
( Results in higher demand for grain to feed the cows)
Supply for food is more inclined to fluctuate
- If supply rises, prices of food drop
- Some harvests are good, some are worse
- Effects of climate change
- Effects of the Covid-19 Pandemic
Prices of imported food rise if
- Other countries prioritize the home market
- Other countries have a bad harvest too
The government might try to intervene in the economy (= Visible hand)
- If they try to fix prices, sellers will refuse to stock something they can’t sell at a profit
( This will lead to shortages of certain products)
- Government could give away food, but this results in higher expenses, a high level of
bureaucracy and rationing of food
Another method to counter rising food prices Buffer Stock
- During a shortage, the buffer stock is released into the market
- This increases supply and reduces prices ( Equilibrium price does not change)
- No price-fixation or rationing necessary
- This method is not very common ( Used by India to store grain)
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