Political Economy Analysis: Economics Lectures 1 and 3 Assignment

This assignment provides an overview of political economy, examining the concept of capitalism, market order, and the arguments for economic freedom and competition. It explores the historical context, contrasting capitalism with feudalism and socialism, and delves into the ideas of Adam Smith, John Stuart Mill, and Karl Marx. The assignment analyzes the injustices of capitalism, including inequality, labor market issues, and environmental concerns. It discusses different definitions of capitalism, the role of government in maintaining market freedoms, and the evolution of economic thought, including historical materialism and the critique of capitalism. The assignment also examines the views of Smith, Mill, and Marx on colonialism, and considers the challenges of applying historical theories to contemporary economic issues.

Lecture 1
What can philosophy bring to this?
- Many people today blame economic injustice on capitalism. Those who defend
capitalism are ‘pragmatic, even ‘apologetic’ - avoiding moral arguments
- This contrasts with the Golden Age of political economy. Adam Smith, John Stuart Mill
thought that capitalism would advance justice
- What went wrong??
What are the injustices of capitalism?
- Massive, growing dynastic inequality
- Increasingly oppressive labour markets
- Environmental destruction and resource wastage, driven by ‘consumerism’
- Disproportionate political influence of corporations
- Proliferation of harmful products
- Everyone needing to find work even though many jobs are crap and / or machines could
do them
- Encroachment of markets into the wrong places - some things should not be for sale
- Not enough done to address historical injustice, much of which is of an economic support
What’s to blame?
For any of the alleged injustices, it is usually possible to find someone attributing them to
capitalism
This raises questions about:
- How people see the economic status quo
- How people seem to want generalised, systematic deep explanations even for very
specific phenomena / events. Maybe it sounds better to speak of crony capitalism rather
than just cronyism
What is Capitalism
- Frequent use of slogans is not a theory, even if when the subject matter has significance
- Capitalism probably doesn’t describe the economic status quo very accurately. The status
quo was not designed according to some plan, but evolved haphazardly. And in any case
it varies across countries.
Capitalism and Market Order
- It is sometimes said that capitalism is ‘free markets’. Often accompanied by accusing
governments of interfering with the markets and making them less free

- Markets occur when people make consensual exchanges of goods and services
- Markets will emerge in just about any context where there is scarcity, even when
prohibited
- so, a capitalist society has to be more than just one in which markets are present
- Roughly, capitalism is about maintaining a balance between economic freedom and
competition. Moral considerations help us understand what this balance actually is
- Maintaining capitalism requires government institutions aimed at protecting market
freedoms. But they also do other things which may restrict freedoms.
Free Markets: No such thing?
- Capitalism does involve promotion of market freedoms, i.e. property and contract
- But it needs institutions that maintain competition. This helps define but also restrict the
proper content of market freedoms
- In any case, it is people (and maybe groups, organisations) who can be free or unfree, not
markets per se
Capitalism, Old-Fashioned Style
- Market order was first supposed to emancipate people from oppression, and to reduce
famines, wars and such
- Crucial to this is the comparison not with socialism but between capitalism and feudalism
- This comparison is not as out of date as you might think
Arguable implications (of capitalism!)
- Anti-migration laws need to end (and so detention of migrants definitely need to end
- Nobody should have to rely on selling their labour alone (and hence fear unemployment)
- Inherited wealth is unjust, at least when unequally distributed
- Companies should have no shareholders - the workers should own the capital
Our Aims
- What sort of arguments were originally given for the moral foundations of capitalism
- How compelling are these arguments and how well have they aged?
- What can we learn about how to reform specific aspects of the economic status quo in the
21st century
- And what arguments can be made about alternative systems
Why is economic freedom desirable?
- Freedom is market freedoms, they allow people to participate in markets such as freedom
to own stuff and do stuff with it and freedom to enter contracts
So why is it desirable?
- Partly, just because freedom is desirable and nice. It is one way of respecting human
diversity and individuality

- The case for economic freedom, involves arguments about how knowledge moves around
society
Why is competition desirable?
- Market order is competitive when it has low barriers to entry for participating in
productive exchange, and nobody enjoys special protections or beneficial imbalances
- More normatively, competition approximates equality of opportunity, while tolerating
some inequality of distributive outcomes
- Opposite of monopoly
Barriers to entry
- High cost of education
- Ability of wealth inequalities to impact on market opportunities (e.g. unpaid internships)
- Laws restricting specific activities (e.g. some licenses)
- Intellectual property with overly generous expiration conditions
- Simple coercion by established parties (e.g. lawsuits)
- Entry involves entering into some sort of market exchange
In practice
Capitalism involves
- Protection / enforcement of economic rights
- Dispersion of private property
- State supported institutions that make markets scalable (e.g. money itself, infrastructure)
- Carefully regulated labour markets (e.g. welfare state, minimum wage)
- The latter three conditions all suggest something about the limits of the first, which are
not absolute rights
Contrasting Definitions
Capitalism: Dispersed private ownership of capital, status equality, production managed by
freedom and competition
Socialism: State ownership of capital, status equality, production through coercive planning
Feudalism: Concentrated private ownership of capital, dynastic status inequality, production via
coercive planning
Status Equality
- Capitalism: YES - market freedoms are shared equally, and competition approximates a
kind of equality of opportunity
- Socialism: YES - distribution of goods, wages, etc aims at securing material equality

- Feudalism: NO - people’s rights and position in society depend on the social class they
are born into, may be legally enforced
Examples
- Legally segregated societies curtail market freedoms, e.g. Apartheid in South Africa and
Jim Crow laws in Southern USA
- Qualification: market order does not care about social norms but people do! And markets
will often exacerbate / compound prevailing norms.
Central Planning (vs Competition)
- Capitalism: NO - there is no overall controller of the economy
- Socialism: YES - the government sets targets and commands production, according to
some goal of serving the common good
- Feudalism: YES - the economic elites make commands as in socialism, but no obligation
or pretense to make commands for the common good
Examples
- Aus government are very keen to promote energy production through coal
- This is not very capitalist (big barriers to entry for green energy) Unclear if it should be
described as social or if this is vaguely feudalist (elites doing favours for each other)
Private Ownership (vs State Ownership)
- Capitalism: YES - capital is privately owned but dispersed to a degree for the sake of
competition
- Socialism: NO - there is no private property only public property except perhaps for some
personal, non-productive capital such as clothes or car
- Feudalism: YES - land and productive capital is privately owned but concentrated into
the hands of the economic elite
Examples
- The existence of any monopoly is a departure from ‘pure’ capitalism as we’re defining it
- Some australian industries seem to be approaching monopoly conditions (telecom,
grocery, retail banking)
- But markets will always fail to produce some goods, suggesting that some state
monopolies can be justified
The Real Liberal Tradition
- Adam Smith and sometimes JS Mill associated with classical liberalism
- In contemporary politics, this is sometimes represented as a ‘pro free-market’ position.
As we will see it is more subtle than thus
- Scholars sometimes speak of “high liberalism” to refer to 20th century views on which
market freedoms are somewhat downplayed
Lecture 3 - Political Economy, Part 1

What is political economy
- An attempt to simultaneously understand and evaluate the economy, including its past
and future
- Political economy is moralized, but takes the facts seriously. These include macro facts
about large structural features of the economy, historical examples, and micro-facts about
human psychology.
- Something of an ‘ancestor’ discipline to current specialized disciplines of economics,
political science and political philosophy
Mill’s Definition
Political economy is partly a moral exercise but it is also a social science exercise. (paraphrased)
Some Methodological Elements
- Economies evolve over time - principles of economic justice might evolve accordingly
- Principles are largely non-ideal: How can we improve the status quo, whatever it is?
Contrasts with ideal theory in political philosophy (what would a perfect society would
look like?)
- Examples: Smith on inheritance, Mill on work
The Golden Age
- Preceded by enlightenment era political philosophy, which pioneered secular thinking
about justice, governance, laws, etc
- Began properly with the first systematic work in political, Adam Smith’s Wealth of
Nations
- In text book it is picked from 1770 to 1870
Industrial Revolution
- Occured in Europe throughout the 19th century
- Impacted enormously on the nature and output of production,and on the character of
labour markets and inequality
- Philosophers from the golden age can be distinguished according to whether they were
pre or post industrial
Main Pre industrial players
- Adam Smith
- Thomas Malthus
- David Ricardo
Post industrial
- John stuart Mill
- Karl Marx

Two Reasons for old dead white men
- They were comprehensive - there are not recent texts with the same level of generality
- They had influence - if we want to understand central ideas in political economy, we lose
something if we skip the old texts. In many ways the questions have not changed
A note on studying historical figures
- Studying historical figures should not be hero worship
- They were not geniuses, they made mistakes and had biases
- Figures of the past who are worth studying tend to be behind our times but ahead of their
own
- Interesting questions is of where we should agree and where to disagree
Smith on Colonialism
- When you colonise people you stop them from being masters of their own economy and
this is a manifest violation of the most sacred rights of mankind
The pessimists
- Malthus: the labouring majority will remain poor because as soon as they get more food
they have more babies and thus remain poor
- Ricardo: the labouring majority will remain poor
- Marx: the labouring majority will remain dirt poor until they inevitable get sick of it and
start a revolution, leading to communism
The optimists
- Adam smith: capitalism is great! It gets things produced, improves our moral character,
breaks up privilege and hierarchy, and promotes world peace
- JS Mill: capitalism can do these things, but not automatically. It hasn’t been properly
tried yet, and may take time to promote justice. But, if we can get regulations right, it can
Historical or Atemporal
- Smith and Mill never use the word capitalism
- They speak of ‘commercial society’ and the ‘system of private property’
- The ‘atemporal’ definition of capitalism as a balance between freedom and competition is
derived from Smith and Mill’s writings
- It differs somewhat from the definition used by Karl Marx, which is historical
Marx’s main ideas
- The theory of history: Capitalism is a phase in economic evolution, lying between
feudalism and socialism
The Critique of Capitalism
- Capitalist production involves exploitation of workers

- Capitalist production alienates workers from their labour
- Marx’s texts are long and there is disagreement about which contain the central / best
ideas
Historical Materialism
- Human beings are innately proactive, and will find ways to keep makingnew things.
Social structures come and go accordingly
- Once production ‘outgrows’ the existing structure, some revolutionary process will
secure the move to a new structure
- Key Claim: There are laws that govern the evolution of social development. And these
laws can be discovered
Capitalism as a Phase
- Feudalism ended because non-agrarian means of production emerged
- E.g. in Britain Monarchical / Aristocratic power gave way to parliament, controlled by
owners of industrial capital
- The structure e.g. laws, changed so as to enable capitalists to get the most productivity
from workers
- Eventually the workers will rise up and another revolution will take place
Some Problems
- Actual history of the feudal-capitalist tradition doesn’t fit well with Marx’s theory, e.g.
cases of societies going forwards then backwards, or stagnating (e.g. Ancient Rome or
Venice)
- What to say about feudal - socialist transitions that arguably skipped capitalism (soviet
union, china)
- The predicted collapse of capitalism is hard to test: apparent counter-evidence is
dismissed as a deliberate ply (e.g. corporations losing court cases analysed as a ‘trick’)
Has Capitalism Ever Been Tried?
- Mill thought we never exited feudalism fully
- Instead we should see the process of social development as not wholly inevitable, but
something we can regulate / mitigate
- This helps motivate the search for principles of justice
The Theory of History vs The Critique
- Frankly this subject assumes that Marx was wrong about economic history
- Rejecting his theory of history does nothing to undermine Marx’s critique
- There arguably remain significant points of agreement, or at least continuity, between
Marx and other Golden Age thinkers

The 20th Century
- The word economics was invented by Alfred Marshall in the 1880s. End of Golden age
- In the 20th century, economics became more distanced from moral / normative concerns,
focusing on mathematics and predictive models
- Political philosophy went the other way, more about abstract and less about study of
economies
Lecture 4 - Political Economy, Part 2
The Fragmented Age
- Division of labour between moralized evaluation using theories and scientific predictive
work using data
- Since early 2000s, political economy has been making a comeback in research, though
teaching still rather fragmented
What is the economy
- Very abstractly, an economy is any system in which people interact to cope with scarcity
- Scarcity is any situation in which not everyone can have everything they want, all the
time, but can do better by working together
- Here, interaction can mean voluntary cooperation or coercive planning
- This definition however does not presuppose anything about cash or financial institutions
The economy vs its performance
- Oftwen people talk about the economy, they mean the output (GDP) or other ways of
measuring performance
- GDP is the market value of newly produced goods and services, growth is the rate of
increase of GDP
- Why is this valuable? Historically it is a proxy for things like employment, wage growth
and cheap(er) stuff
- Recessions are 2x consecutive quarters of negative growth
- We are currently in a recession
What is economics for?
- Economics identified itself as a science in the 20th century
- This involved shying away from value judgements like claims about justice
- At the same time, an economy is essentially about people interacting to increase their
well-being, which is a value laden concept
- In any case, it is possible to find implicit moral views in 20th century economic writings
Economic schools since fragmentation
- Classical (marx, smith, etc)
- Neoclassical

- Marxist
- Developmentalist
- Austrian
- Schumpeterian
- Keynesian
- Institutionalist
- Behaviouralist
Philosophy of Economics
- Is economics a science?
- YES: it aims to predict and explain, and there is a degree of agreement building up over
time
- NO: it’s predictive powers are inferior to established sciences, and there is more
disagreement. No controlled experiments
- Political economy is not about interrogating economics as a discipline it is concerned
with (re)integrating it with political philosophy
Political Philosophy in 1900s
- Ultimately still motivated by partly economic concerns - how to distribute share of
economic output
- But little attention to the mechanisms of market society
- Focus mainly on concepts with moral political significance - meaning of equality,
freedom, democracy, etc
- Large gap between Mills and Rawls (1970)
Two Key Concepts
- Legitimacy: How is it that a coercive state gets its authority? Why is anarchism false?
- Justice: How should the state exercise what a legitimate authority it has? How should
freedom and equality be balanced?
- Note: These questions were discussed before 20th century, but became dominant in
philosophy during the fragmented age
Traditions of Thought
- Social Contract Theory
- Utilitarianism
- Liberalism
- Egalitarianism
- Unlike schools of economics, there is a tendency to find overlaps between elements of
these traditions
Social Contract Theory
- Emerged in European enlightenment, developed by Hobbes, Locke and Rosseau

- Aimed to explain how the state has the consent of those it governs (coerces)
- Draws on the idea that contractual obligations are binding because we consent to them
- General Problem: Virtually nobody consents and exiting is not really an options
- Rawls - justice represents rules we would consent to if we didn't know our position in
society
Utilitarianism
- Emerged as a response to 19th century conservatism, on which pleasure was base and
that traditional hierarchies made sense
- The idea of maximising pleasure or wellbeing appears conceptually simple and is
amenable to measurement
- Has application to both ethical and political theory, and had influence in economics
Liberalism
- Individual freedom is of fundamental importance; we should value diversity and
experimentation over tradition and homogeneity; centralised power is fallible
- Much work has been done to identify which freedoms matter and why
- Libertarianism is one view on which economic freedoms are especially important and
government should be small, Other liberals such as Rawls downplay economic liberty
Egalitarianism
- Equality between individuals is of fundamental importance
- Again lots of questions about what this means and why it matters
- Much work since 1990s on material vs social conceptions of equality: is equality a matter
of distributions of stuff or relationships of status
- A lot of smith and mill that motivates social egalitarianism
Hybridisations
- Much work in political philosophy is about getting attractive elements of each tradition to
work together
- Mill: Utilitarianism and Liberalism
- Rawls: Social contract, egalitarianism and liberalism
- Since 1970 this has created a largely self sustaining industry of research
Feudalism
Anderson on employment justice
- Most workers in the US are governed by dictatorships in their work lives
- Public discourse and political philosophy neglects the pervasiveness of authoritarian
governance in our work and off hours lives
Feudalism and War

- Medieval europe was subject to constant attempts by feudal monarchies to conquer each
other
- Armies were raised by conscripting peasants
- This is sometimes romanticized but clearly it is morally abhorrent
Pre industrial labour markets
- Adam smith saw labour markets as a source of emancipation for peasant labourers
- He apparently assumed that all labour would consist in self employment or small scale
firms - “a nation of shopkeepers”
Post industrial labour markets
- The industrial revolution thwarted Smith’s vision of employment as a small associations
between free individuals interacting as equals
- Employers have become so large that hierarchical relationships may be making a
comeback, despite legal freedom of contract
- Anderson worries that things are drifting back to the feudal model of production that
Smith criticised
Why are there firms?
- Smith was wrong about one thing: Labour markets did not develop as a nexus of
contracts between individual freelancers and owners of capital
- Self employed workers exist but most workers (85% in aus) are employed by firms
- Why is this? Why have firms remained dominant when everyone can work for
themselves
Ronald Coase
- Self employment would usually require constant formation of contracts
- For much production, this is very inconvenient. You have to find someone able to
perform labour then workout a price with advance knowledge of what needs to be done
- Firms reduce these transaction costs by getting workers to sign contracts obliging them
to be directed by managers
Some more detail
- A firm is just any organisation that employs people to reduce transaction costs (charities
and governments too)
- Firms are limited in size because eventually the costs of management exceed the saved
transaction costs
- There are probably other reasons why firms endure e.g. brand familiarity
- But firms lose market share when new technology reduces transaction costs: airbnb
makes it easier for example

Distinguishing Questions
- At this point we as well as anderson are concerned about the inegalitarian character of the
relationship between employee and firm
This is distinct from
1. Questions about injustice of low wages
2. Questions about character of work itself
Whats the philosophical issue?
- Employment means giving up freedom to someone who will then order you around, in
return for some degree of security (guarantee of wages) that freelancers lack
- Notably, the employment contracts are unlike other contracts in being indeterminate
- This seems like the kind of relationship that needs to be carefully regulated, to avoid
morally objectionable hierarchy
Master and the servant (Coase)
- Employment contract is like master and servant
- There is a right of control and this dominant characteristics
- There are no internal markets in modern workplace
The autonomy / security tradeoff
- Self employed workers assume a lot of risk. Income is uncertain and they lack various
benefits of employment law
- We can view employment as trading freedom for security
- The philosophical isse is of what balane should be secured
- Anderson’s evidence suggeststhat in some cases thers an imbalance - too much freedom
given up for little security
Examples in the uSA
- Firing employee for facebook post
- Firing an employee for not providing facebook password
- Requirements to wear certain clothes, makeup and hairstyles
- Requirements not to use the toilet without permission
What sustains employer domination
1. High entry / exit costs for employees, they lack competition on employer side
2. Indeterminacy of employment contracts
3. Large firms struggle to maintain camaraderie or smithian sentiment
4. Much philosophical discussion of what domination and coercion are
Are we moving towards feudalism