CPOL 510: Power and Money: Topics in Global Political Economy
May 20 – Keynes and Hayek, Part 1
This week we introduce Keynes and Hayek. Understanding their principles and their debates unlocks the debates that took place across the West (and in many parts of the world) in the last hundred years.
From Keynes arguments’ at the Treaty of Paris negotiations to the Great Depression and New Deal, from the new world order after World War II – IMF, World Bank, EU – to stagflation in the 1970s, Keynesian ideas dominated Western and international orgranizations. It is an overstatement to say the Communist World was Keynesian ideas gone too far – in fact, they were of a different motivation and magnitude. But Keynes (and Soviet and Chinese Communists) thought the Government was smart and could do good things and therefore ought to.
Hayek had different ideas. He began his scholarship optimistic that socialism could do good things, but the math didn’t work. Governments don’t know how much stuff should cost, and setting prices at the wrong level created inefficiencies, or worse. Economies need to know price levels and only markets, Hayek decided, could do that. But Hayek was also concerned at the more political level: everything the government had the effect of taking away a person’s liberty; the more the govt does, the more liberty is lost.
We start with some background. Debates over the question of How much should the government do? or What is the proper role of the government in the economy? date back long before Keynes and Hayek. We’ll go back about 150 years, to hear Adam Smith argue that the free market and free trade are the best approach, while Alexander Hamilton argues that in some cases (like in the case of the new United States), a strong government role in the economy is required.
If you took CPOL 500 with me, you may have seen different sections of these readings before. They are worth revisiting. The language is slow and difficult even for native English speakers. Do your best to read for the main ideas; you do not need a detailed understanding of every paragraph.
A short introduction – four minutes – to our ideas for this week. The video quality is low and ignore the “July 13” reference, but otherwise I think parts of it are useful
Read – it’s ok to read these quickly and for general understanding
Adam Smith, The Wealth of Nations (1776)
Book 1, Chapter 2: Of the Principle which gives Occasion to the Division of Labor https://www.econlib.org/library/Smith/smWN.html?chapter_num=5#book-reader
Did you make the clothes you are wearing? Did you grow the food you are eating? Did you make the computer you are using? No – you worked doing the things you are good at, traded that work for money, and traded that money for other things, like clothes and food and computers. Smith says this is what countries should do too.
Alexander Hamilton, Report on Manufactures (1791) http://www.constitution.org/ah/rpt_manufactures.pdf
Reading the whole of this Report takes longer than seeing the show, but rhymes less. You can get the gist from pages 14 and 15: this new country needs to develop itself to defend its recently-won independence
Friedrich List, The National System of Political Economy (1841)
List says that what Smith says about free trade is true – if you are the advanced industrial nation of England. But if you are the less-developed France or Spain or Germany, you will lose in a world of free trade – you instead must used protectionist policies to catch up first. You can skip down to Chapter XI and then skip down to paragraph 15 – the big one beginning “History teaches….” and read the rest of chapter XI from there. https://oll.libertyfund.org/titles/list-the-national-system-of-political-economy
You might review these notes as well
Smith says less government restrictions on trade is good for creating the most wealth. Hamilton argues that agricultural states need government and protectionist policies to develop industry. List agrees with Hamilton.
The decades following List and especially following the American Civil War (1861-1865) are decades of great industrialization, and indeed an early modern version of globalization. By 1909 (and 1912), British writer Norman Angell argues that this growth of trade and investment makes war among the advanced states of Europe completely illogical and therefore possible avoidable. American naval historian A.T. Mahan is arguing the opposite. Angell and Mahan in three slides: angell mahan ppt
By 1914, World War I is underway.
The horrors of World War I lead Europeans and many Americans to seek a new system of economics that will prevent war. Some look at socialism. But Keynes and Hayek have a more sophisticated argument, within the market-oriented philosophy but differing over the proper role of government.
Next, we watch a series of short videos on the economic history of Europe in first half of the 20th century. It’s actually much better than it sounds! It sets the stage for the Keynes-Hayek debates of the 1930s, but it also predicts the debates as they will play out in the U.S. and around the world for the next 100 years including still today. Understanding Keynes and Hayek then helps us understand so much of the global political economy debates today.
Read – spend some quality time with these, reading them carefully
This short introductions give a decent peek into the greater substance of their work. Keynes can be tough, but it is only a few pages
Keynes, The General Theory (1935), a short selection – be sure to read at least 245-249
Hayek, The Road to Serfdom (1944), the introduction, and a comic-book summary
The introduction is useful enough. Chapters 1 and 2 evoke interesting comparisons to some on the American left today Hayek – road to serfdom – intro, ch1, ch2
Get comfortable, this is about 45 minutes (or two episodes of The Office, or one episode of The West Wing). Begin with episode 1 chapter 1 – and it will play through the next several chapters. You want to stop after episode 1 chapter 8. The video has the option for captions. You can also get the complete transcript here.
The history is useful enough, but the real value is in finding the key questions that we still ask today.
Ok, your turn
Two parts this week, and future weeks.
(1) This is a tremendous amount of information. Much of it is history you may not be familiar with. (But you should be glad – I used to require much longer readings of Keynes and Hayek!)
One good approach might be to think of one “big narrative” that you found especially interesting or important or challenging – one big idea that you had not heard of before, or that you thought of in a new way, or that you have changed your mind about, etc. Reflect and write about this.
And also reflect and write about one smaller point – one detail, one piece of the story, one smaller item that has real meaning or importance larger than what we might think at first.
This should be done by Thursday night, totalling approximately 500 words
(2) Reply to one or more of you classmates. Engage them in their argument – how you agreed or disagreed; how they enlightened you by taking a perspective you had not considered; how they brought together ideas that you hadn’t thought of bringing together; how they used the same approach as you but came to different conclusions, or took a different approach than you did but came to similar conclusions; or any other reflections you have.
Your replies should be posted by Sunday night. You probably want to address at least two of your classmates. Your replies (one or two or three or whatever) should combine to total approximately 400 words.
This is the first time we are replying to each other — you want to be sure to see/review https://govt396.com/links/what-makes-a-good-post/