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Download The Market Economy: A Reader epub

by Dwight R. Lee,James L. Doti

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Download The Market Economy: A Reader epub
ISBN: 0935732268
ISBN13: 978-0935732269
Category: Business
Subcategory: Economics
Author: Dwight R. Lee,James L. Doti
Language: English
Publisher: Roxbury Pub Co; illustrated edition edition (January 1, 1991)
Pages: 362 pages
ePUB size: 1192 kb
FB2 size: 1415 kb
Rating: 4.5
Votes: 653
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Once in the wayback, it was acceptable, if not admirable, to be known as a capitalist. Not any longer thanks to Marx, as well as the general belief that capitalism enslaves the poor, rapes the environment, usurps the government, and does other terrible things. Today, if you feel shy about using the term, you’ll feel much safer if you simply say you support ‘market economies.’ If you care to find out what market economies are, and what that old classical liberal term, capitalism, was about, this book is a concise shortcut for you.

Editors Doti and Lee have organized forty four essays and excerpts from larger works into eight sections. The writings include works by Doti and Lee themselves, but mostly are comprised of many of the most influential thinkers on market economics, from the beginnings with Adam Smith to the almost contemporary Milton Friedman. Summaries of the sections and selections follow:

I. The Invisible Hand
Doti starts the first section off with a ‘parable’ on why ‘greed is good.’ Scoff now, if you like, but after reading this selection, you’ll come to understand how self-interest on the part of thousands of disinterested strangers ties us all together in the economic web, making our lives better for it. Milton Friedman steps in with a piece on the social responsibility of corporations, concluding that charitable deductions take away from the individualist society and push toward the corporate state. Ayn Rand’s fictional character, Hank Rearden, weighs in with an impassioned defense of moral self-interest. Dwight Lee argues that the freedom to fail is a necessary element of progress. Friedrich Hayek lays out how free floating prices communicate an extraordinary amount of information throughout markets and without the need for centralized authority or control. Finally, Adam Smith, with his classic example of making pins, elucidates how the division of labor, without a greater vision than individuals trading for their own personal gain, produces a greater good for society as a whole.

II. The Market and Individual Freedom
Doti starts with a story of his grand uncle from the old country (Sicily) to illustrate the beauty of liberty. Lee picks up the theme of liberty and individual responsibility, predicated on private property and the role of government. Milton Friedman expounds upon the relation between economic freedom and political freedom, one being dependent upon the other. James Gwartney goes into greater detail than Lee on the role of private property in maintaining freedom. Hayek makes the point that free societies exercise little social control and as a consequence are more spontaneous and creative than socialist societies. Ludwig von Mises moves the argument along for the primacy of private property, and the impracticality of socialism.

III. Imperfect Markets
As no markets are really perfect - monopolies curb competition and pollution can be unaccounted for - this section explores the nature and remedies for market imperfections. Doti, again drawing from his Italian background, explores the difficulties of collusion exemplified in the game of bocce. Friedman outlines the natures of the three types of monopolies. Hayek discusses government controls, unintended consequences, political power, corporate size, and competition. Lee tackles pollution and politics, drawing connections between property, property rights, and political solutions. Larry Ruff, carrying on after Lee, posits that pollution is primarily an economic problem and sees solutions in establishing means to price the cost of pollution.

IV. Government Regulation
The interaction between private enterprise and government is a continuous concern to economists. Government regulation to correct market externalities such as scale, resource constraints, monopolies, and pollution need to be balanced with risks of inhibiting the economy and protecting, or rewarding, special interests. Doti kicks off this section with a tale of his grandmother cornering the market with mythical chiminelli seeds. Lee explains how price controls in effect are limits on freedom of communication. Friedman and George Stigler write in 1946 about post-war rent control regulations and argue that a free market on rent is a quicker, more equitable means of returning after a disruption to normalize housing. Adam Smith finishes the section with an analysis on the restriction of goods and services through the establishment of monopolies.

V. The Proper Role of Government
The necessity of secure borders, protection of private property, and adjudication of contractual issues for the free flow of commerce is accepted as the purview of government. Government can solve further issues, however its proper role should be to create the setting for the people to solve their own problems. Doti opens with a Chicago tale of a lemonade business being pushed out by politics favoring the special interests over the unorganized many. Friedman discusses the limited, but important role of government in establishing the setting for free markets, and the need to constrain the tendency toward government expansion. Lee tackles the U.S. Constitution, explaining how our economic system is dependent on our political system, and how maintaining a position between the Hobbesian and political jungles is critical. Ayn Rand continues on the discussion on the nature of government and the need to maintain it through objective principals. Adam Smith covers the rightful expenses of government. Henry Thoreau covers the need and duty of citizens to practice civil disobedience as a means of control and source of improvement of the government. John Stuart Mill rounds out the section with an excerpt from “On Liberty,” which discusses the limits of societal authority over the individual, and limits of the individual’s sovereignty over him or herself.

VI. Scarcity, Conflict, and Social Cooperation
One way to look at economics is that it is simply about scarcity and how to deal with it. While scarcity often brings out conflicts, less recognized but more commonly, it is the basis for social cooperation. Doti again draws from his Italian background with a eye opening story of how regulating usury laws, under the premise of social good, limits the options and causes harm to those the laws intended to protect. Lee describes how political contention over the ‘rules of the road’ for commerce converts competing virtues into political malice and ill will; while conversely relying on incentives of private property and free market exchange can enhance social harmony. James Buchanan (Nobel 1986) diagnoses America and Japan through the lens of interlocking societal factions: community, order, and anarchy, in an analysis that enlightens the structure of all societies. Finally, R. H. Coase tackles the problem of businesses that have harmful effects on others; recognizing harm as a two-way street, leads parties to pricing solutions.

VII. The Distribution of Income
Probably the most contentious issue debated in the argument of capitalism versus socialism is the one of income distribution. Clearly, market economies result in unequal distribution of income; that is in fact one of the essential characteristics of private enterprise that creates the motivations to produce greater wealth. The question is whether government should step in to ‘correct’ these imbalances, and if so, can it be effective in doing so. If you have ever wondered why after all the years of social programs aimed at eradicating poverty, poverty still persists, this section will provide possible answers to consider. Lee starts off detailing how ineffective the war on poverty has been, how its very failure has perpetuated the anti-poverty programs, and how we may reverse the situation by acknowledging the reality of the political process. Milton and Rose Friedman highlight the distinction between equality of opportunity and equality of outcome, and argue that the society that puts equality of outcome ahead of freedom will end up with neither. Charles Murray offers a thought provoking thought experiment to demonstrate the structural difficulties in designing a program to remedy the ills of society. Gordon Turlow examines the phenomenon of charity, to argue that contrary to the common notion that in democracies wealth is transferred from the rich to the poor, wealth is actually transferred from the politically weak to the politically strong; while individuals suffer from cognitive dissonance over the act of giving versus personal selfishness. Adam Smith completes the section with a timeless, simple, and accurate analysis of why it is that some people are paid in unequal fashion to others.

VIII. International Trade
Ultimately, countries look beyond their borders to enhance their economies, either by finding other markets to sell their surplus production to, or to find products they either cannot produce or can find at a lower cost. Almost unanimously, economists agree that international trade produces greater wealth, benefiting all parties. International trade, however, often produces disruptions in the economic status quo, as lower priced goods may wipe out domestic industries, or excessive international demand for goods may limit the domestic availability. Powerful special interests pressure governments to impose tariffs and duties to protect domestic markets, almost always creating harm for the consumer. Doti tells a tale of his grandmother facing competition from the old country, forcing her to improve her ravioli operation in order to stay competitive. Marc Levinson goes through a series of examples, from trivial to major, detailing how the term ‘dumping’ is fraught with difficulties in determining what it means, what true ‘cost’ levels are, who the victims and perpetrators are, what remedies to apply, and whether dumping is really, in fact, a problem. The Friedman's take on all the major arguments regarding the imposition of controls on trade, persuasively making the case for international trade without restrictions. Frederic Bastiat uses satire to point out the absurdity of refusing imports at lower costs than can be produced domestically in the name of protecting domestic industries. Adam Smith makes a case for moderation when implementing changes on trade policies, cautioning on the disruptive economic and cultural effects of rapid change. Richard Ricardo details the workings of ‘comparative advantage’ (his discovery) in many variations of circumstance and application, concluding international trade is always a net benefit. Bastiat finishes the section and the book with a light hearted recitation of protectionism, it’s futility and unintended consequences.

Postscript cautionary: If you have a socialist outlook, this collection of writings will be challenging, but helpful in honing your own arguments.
This is a mix of two things - first, it is a good set of readings from key economic thinkers - Hayek, Bastiat and others. Then each section is introduced with a story about Jim Doti's Italian family in Chicago - that illustrate the principles in the section. Dwight Lee and Jim Doti are first rate economists - Dwight Lee has contributed heavily to Public Choice economics and Doti is both the president of a University and the founder of the Chapman economic forecast. But don't let the academic ties turn you off. This ranks with Henry Hazlitt's masterpiece as a wonderful introduction to markets.