1. THE HISTORY OF
POLITICAL ECONOMY

2. The Circle of Political Philosophy

3. “CONTRACTS WITHOUT THE SWORD ARE ONLY WORDS”
THOMAS HOBBES
The English philosopher and political theorist Thomas Hobbes ( ) was one of the central figures of British empiricism.  His major work, Leviathan (1651), expressed his principle of materialism and his concept of the social contract forming the basis of society.
“CONTRACTS WITHOUT THE SWORD ARE ONLY WORDS”

4. Principle Ideas of Hobbes
I.  NATURE
A.  FREEDOM:  LAW OF THE JUNGLE
ANARCHY   
B.   SECURITY:  RULE OF LAW
COMMUNITY
II.  THE SOCIAL CONTRACT      A.  PEACE      B.  CONTRACTS      C.  OBLIGATIONS      D.  JUSTICE
III. MONARCHY      A.  DEMOCRACY      B.  ARISTOCRACY      C.  THE LEVIATHAN: “THE MORTAL GOD”

5. Hobbes Part Deux
Hobbes explains the connection between nature, “man,” and society through the law of inertia.  A moving object continues to move until impeded by another force. “Man's” liberty or desire to do what he wants is checked only by an equal and opposite need for security.   According to Hobbes, society “is but an artificial man” invented by men.
“Freedom” is a cold comfort because freedom is anarchy (the absence of government) and is characterized as “solitary, nasty, brutish, and short.” 
The equality of human desire is matched by an economy of natural satisfaction.  Men are addicted to power because its acquisition is the only guarantee of living well.  Men therefore live in “a state of perpetual war” driven by competition and the desire for the same limited resources. 
Hobbes has a second “law of nature”:  men may surrender their individual will and transfer their individual rights to the state.  This “social contract” binds the individual to treat others as he expects to be treated by them. 
In Hobbes' view the sovereign power of a commonwealth is absolute and not subject to the laws and obligations of citizens.  Obedience is compulsory so long as the sovereign government fulfills the social compact by protecting the rights of the individual.  Consequently rebellion is unjust, by definition, but should the cause of revolution prevail, a new absolute sovereign is created.

6. JEAN ROUSSEAU “MAN IS BORN FREE, YET EVERYWHERE HE IS IN CHAINS.”
The Swiss-born  philosopher, author, political theorist, and composer Jean-Jacques Rousseau ( ) is one of the greatest figures of the French Enlightenment.  His major work, The Social Contract (1762), expanded upon Hobbes' concept of the social contract but asserted that the sovereign government was merely the servant of the general will of the citizens.
“MAN IS BORN FREE, YET EVERYWHERE HE IS IN CHAINS.”

7. Rousseau’s Political Thought
I.  NATURE      A.  INSTINCT: SELF-INTEREST, SURVIVAL, AGGRESSION
COMPETITION    
B.   REASON: SECURITY, RESPONSIBILITY, BENEVOLENCE
COOPERATION
II.  THE SOCIAL CONTRACT      A.  THE SOCIAL CONSCIENCE (empathy)      B.  NATURAL RIGHTS (life, liberty, porperty)      C.  CIVIL RIGHTS
III.  DEMOCRACY      A.  GENERAL WILL: MAJORITY RULE WITH RESPECT TO THE RIGHTS OF THE MINORITY      B.  THE RIGHT TO REBEL (if the social contract is broken)

8. Rousseau Pt. II
Rousseau's The Social Contract, attempted to describe the social relation that a properly educated man (“a free man”) bears to other free men.  Key ideas of the work: popular sovereignty and the general will.
Government is only an intermediary between the people as law followers (or “subjects”) and law creators (“the state”).  The government is an instrument created by the citizens through collective action expressed in the general will. 
The purpose of government is to serve the people by seeing to it that laws expressive of the general will of the citizens are in fact executed.  In short, the government is the servant of the people, not their master. 
The state itself was to be all-inclusive, small enough for every citizen to know every other citizen, and no decision was to be made without fully-informed, truthful discussion free of outside interference.

9. ADAM SMITH
The Scottish economist and moral philosopher Adam Smith ( ) believed that in a laissez-faire economic system the impulse of self-interest would work to promote the overall general welfare of the public.
"IT IS NOT FROM THE BENEVOLENCE OF THE BUTCHER, THE BREWER, OR THE BAKER THAT WE EXPECT OUR DINNER, BUT FROM THEIR REGARD TO THEIR OWN SELF-INTEREST"

10. Principle Ideas of Smith
I. NATURE    A. INSTINCT:  SURVIVAL, POSSESSION
SELF-INTEREST   
B. REASON:  THE “IMPARTIAL SPECTATOR”
FORESIGHT
II. THE FREE MARKET    A. SELF-INTEREST (material success)    B. PRIVATE PROPERTY (ownership/control)
   C. FREEDOM OF CHOICE    D. MARKETS (exchange of goods/services)    E. COMPETITION (innovation)
III. THE SOCIAL CONTRACT    A. NATURAL LIBERTY    B. PROFIT MOTIVE    C. LAISSEZ-FAIRE (‘let be’; Smith called this the “INVISIBLE HAND”)
IV. CAPITALISM    A. SPECIALIZATION (“division of labor”)
   B. INTERDEPENDENCE    C. INDIVIDUALISM

11. Smith Pt. II ADAM SMITH: FATHER OF ECONOMICS
Economics was born as a distinct discipline with the publication of Smith's Inquiry Into the Nature and Causes of the Wealth of Nations (1776).
The most important and enduring contribution of Wealth of Nations: Smith's explanation of the beneficial workings of the free market. Market equilibrium as “the quantity of every commodity brought to market naturally suits itself to the effectual demand,” as well as the concepts of land, labor, or stock (capital).
Smith’s most basic premise: market prices and quantities should be permitted to adjust to their equilibrium levels without any interference from the government (as opposed to mercantilism).
A “nation's” real wealth would be maximized by allowing individuals to make economic decisions based on the forces of the marketplace, unhindered by government regulations. In pursuing our own self-interest, people would be guided by an invisible hand to maximize their personal contribution to the economy as a whole.
* Adam Smith is generally loved by economic and political “conservatives”…but he was a radical intellectual of his time!

12. KARL MARX
The German philosopher, radical economist and revolutionary leader Karl Marx ( ) founded modern 'scientific' socialism. His basic ideas (Marxism or dialectical materialism) created socialist and communist movements throughout the world today.
"THE HISTORY OF ALL HITHERTO EXISTING SOCIETY IS THE HISTORY OF CLASS STRUGGLE."

13. Principle Ideas of Marxism
I. NATURE    A. COOPERATION (communal production)    B. SUBSISTENCE (work and play)    C. ALIENATION (due to ownership; “haves and have nots”) CONTRADICTION  
D. EXPLOITATION (because of surplus value)
   E. FRAGMENTATION (social classes)
CONFLICT
II. DIALECTICAL MATERIALISM    A. DIALECTICS (everything has a thesis and antithesis)
   B. MATERIALISM (every human activity is economic in nature)    C. DYNAMIC CHANGE (class warfare)
III. SOCIALISM      A. PUBLIC OWNERSHIP      B. LABOR UNIONS      C. GOVERNMENT INTERVENTION      B. VIOLENT REVOLUTION
IV. COMMUNISM    *FROM EACH ACCORDING TO HIS ABILITY, TO EACH ACCORDING TO HIS NEED

14. Marxism Pt. II
In 1867 Karl Marx predicted the demise of capitalism as a result of class struggle-- the struggle of lower socioeconomic classes over the means of production.
According to Marx, all history can be explained by the conflict between opposing forces, the thesis and antithesis. Out of this conflict change emerges through synthesis (dialectical materialism).
The evolution into capitalism, instead of some other form of social contract, was due to the arrival of machines and the factory system. This created two new contending forces: the capitalist class (bourgeoisie), which owns the means of production, and the wage workers (or proletariat), which has to sell its labor to survive.
labor theory of value: results in increasing output with a smaller labor force
New “synthesis”? Socialism, where the proletariat owns the means of production.
* A new government by the working class would become a communal society operating under the slogan: "from each according to his ability, to each according to his need."

15. GAME THEORY & THE FREE-RIDER “PROBLEM”
Game Theory: a branch of applied mathematics and economics that studies strategic situations where players choose different actions in an attempt to maximize their returns.
The Prisoner’s Dilemma:
Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, the police can sentence both prisoners to only six months in jail for a minor charge. If each betrays the other, each will receive a two-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So the question this dilemma poses is: What will happen? How will the prisoners act?
Prisoner B Stays SilentPrisoner B BetraysPrisoner A Stays SilentBoth serve six monthsPrisoner A serves ten years Prisoner B goes freePrisoner A BetraysPrisoner A goes free Prisoner B serves ten yearsBoth serve two years
How does game theory shed light on government decision-making?
The use of public lands? International trade?

16. GAME THEORY & THE “FREE-RIDER” PROBLEM
game theory: a branch of applied mathematics and economics that studies strategic situations where players choose different actions in an attempt to maximize their returns
The Prisoner’s Dilemma:
Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, the police can sentence both prisoners to only six months in jail for a minor charge. If each betrays the other, each will receive a two-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So the question this dilemma poses is: What will happen? How will the prisoners act?

17. How does game theory shed light on government decision-making
How does game theory shed light on government decision-making? The use of public lands? International trade?
THE PRISONER’S DILEMMA
Prisoner B Stays Silent
Prisoner B Betrays
Prisoner A Stays Silent
Both serve six months
Prisoner A serves ten years Prisoner B goes free
Prisoner A Betrays
Prisoner A goes free Prisoner B serves ten years
Both serve two years