Prof: Since we are still
in the shopping period and some
turnover,
I thought it might be good if I
spent the first three or four
minutes recapitulating from
meeting one,
and then a little more on
meeting two,
and then we'll feather that
into today's topic,
which is the great work of
economics,
and the great--the greatest and
most thoughtful normative tract
about markets and capitalism.
I will--I'll begin,
as I said, with a
recapitulation.
 
Then we'll talk about some
basic components of Smith's
argument,
then I'll turn the slides off
for awhile and we'll talk
informally,
and I'll include Jim Alexander
in the conversation about the
way Smith and Smithism plays out
in today's world,
and how it contradicts in many
respects what the great man
actually said and meant to say.
 
Before meeting two, meeting one.
 
Meeting one really just said
this: That the enormous surge in
human wealth over the past 250
years has a great deal to do
with capital,
with the intelligent use of
accumulated wealth in fresh
production.
That capitalism is a subset of
the ways you can use capital,
even socialism uses capital,
even fascism uses capital,
even squirrels and spiders in
some sense or another use
capital.
 
But capitalism is the
subspecies where wealth
accumulated is deployed so as to
create new wealth,
and to do so in a competitive
environment.
And that second piece,
capitalism, was not invented by
some smart guy like Adam Smith,
but rather evolved organically
by trial and error,
by experimentation, by failure.
Indeed, if you look at a market
society, one of its great
features is that its history is
littered with failure.
Learning to analyze past
success and past failure becomes
a key part of it.
 
That's the--one last point,
and the "ism"
in capitalism is not something,
which originally was invented
by its friends,
by rather by its enemies.
It was Marxism and other left
wing movements in the early and
middle nineteenth century whence
the rhetoric of capitalism
appeared.
 
Indeed the word had no
appearance whatever before that
era.
 
In meeting two we looked at the
kinetic structure of the world
economy.
 
With this Hans Rosling diagram
animated,
it's still today,
but animated so that life
expectancy and income per capita
could be seen moving dynamically
across years,
we discovered that the typical
story is a surge north in the
diagram,
representing increased life
expectancy,
with slow progress in income
per capita,
and then a surge around the
horn, so to speak,
into the area upper right of
long lives and relative
affluence.
 
And I asserted,
and many of you agreed,
that there's something
unambiguously good about that
change,
that the world is a better
place because that change
happened.
Now I didn't in the lecture lay
any great stress on the caveats
that people might attach to
that.
One of them is that it was
accomplished,
in considerable measure,
through capital intensive
industry,
and highly capital intensive
forms of transportation.
 
And that these were,
first of all,
disruptive of the natural
environment.
There could be no doubt
whatever that the revolution in
the world economy left the
planet more fragile than it
found it.
 
Indeed, poverty is a marvelous
environmental policy,
because where there is no
demand there is very little
disruption.
 
Now we also looked at the world
demographic transition.
The world demographic
transition, representing changes
in rates of birth and death,
death here in purple and birth
in green,
and the old Malthusian world,
which still exists on parts of
the globe but hasn't existed in
the western world for a couple
of hundred years,
was characterized by very high
birthrates and very high death
rates.
 
So you have essentially static
total population,
and very few people lived to be
old.
Then you have the change in the
death rate occasioned by
infrastructure,
most of all,
related to clean water.
 
And when the death rate falls,
the birthrate doesn't track
with it.
 
The birthrate lags in its
change so there is a period,
Phase II here,
when deaths are falling sharply
and births are statically high.
 
In that period you get an
enormous surge,
you get indeed population
growth at an increasing rate.
You get the spike,
which brought world population
to its present level,
is occasioned largely by Phase
II.
 
Phase III is the period during
which the birthrate adjusts to
the death rate.
 
You still get growing
population, but now at a
diminishing rate.
 
At Stage IV there's an
equilibrium between births and
deaths, and both have lower
rates.
So population is again static,
and lives are much longer.
Underneath that process,
and this I merely hinted in
meeting two,
is a surge in the supply of
labor, which occurs in Stages II
and III and creates a buyer's
market for employers.
 
And by creating a buyer's
market for employers it drives
down wages.
 
Real wages are really quite low
during Phase II and Phase III in
the history of the country.
 
Capital, which is only in part
related to demography,
it has an independent life of
its own,
but capital begins to
appreciate and be agglomerated
in large quantities only late in
this history.
The places where you get huge
build up of capital are
typically places which are
beginning or well into Stage IV,
and if you want to be precise
about it there is a Stage V,
which is where the birthrate
has actually fallen below the
death rate,
so that, as with Japan,
Italy, Russia,
and much of Eastern Europe,
you have falling total
population.
Now there is another aspect to
this that we'll pick up a month
from now, which has to do with
the age profile of the existing
population.
 
You can yourself what
percentage of all the people in
the country are of working age?
 
You can figure from that a
so-called dependency ratio.
How many people too old to work
and too young to work have to be
supported by those who can work,
who are of working age?
And that ratio turns out to be
a big determinant of economic
growth.
 
Whereas with China today,
Ireland in the very recent
past,
you have a demographic sweet
spot where there are relatively
few old and young people,
and almost everybody is in the
working years.
It's--that's a really low
resistance profile.
And then at the other side,
the Japanese,
where the number of elderly
people who need to be supported
is out of proportion to the size
of the actual workforce.
Beneath this--these curves
related to capital and labor are
just a few other things you want
to think about.
One is that you get much higher
incomes in Phase IV than in
earlier phases.
 
It's partly because of capital
concentration,
but it's also because human
capital in the form of trained
ability,
educated people,
it becomes much easier to build
a massive educational apparatus,
a formal apparatus,
and also an applied apparatus
in the workforce where in 40
years of working in a given
trade,
people get really good at it.
So that--that's another way in
which the later stages of the
world demographic transition are
profitable, quite literally,
to a country.
 
Inequality tends to be highest
in the emerging markets,
because typically what you get
is a mass of very poor people,
and relatively small elite,
which has found its way into
capitalist development.
 
Labor abundant,
capital scarce,
we talked about that.
 
Insourcing and outsourcing,
this is a very obvious point;
Stage IV countries outsource
tasks to Stage II and III
countries because labor is much
cheaper.
The obverse of that is
insourcing at the other end.
And the main movement in Stage
II and III countries actually
has two parts:
One is from countryside to
city,
because the opportunities of
capital intensive enterprise are
concentrated in cities;
and from an out of Stage II and
II countries into Stage IV
countries.
 
This is a classic pattern,
which is highly visible today
with the borders of the United
States and Europe being crowded
and not entirely controlled.
 
And it was the same story 100
years ago,
when southern and Eastern
Europe were in Stage III and the
United States was approaching
Stage IV and immigration was
enormous.
 
My own family,
on my father's side,
were immigrants in the early
twentieth century.
Okay, so Smith's invisible hand.
 
The question is:
If its invisible how can we
know it's there?
 
There are various--there are
several good New Yorker
cartoons about that problem.
 
One shows a group of
well-dressed people gathered in
a farm field Darien Connecticut
looking out with binoculars to
find the invisible hand,
which has been reported to have
appeared there.
 
Another is a store with a sign
across the front,
"Store closing,"
and then a caption under the
"store closing"
sign: "Bitch-slapped by
the invisible hand."
 
The condition under which the
invisible hand works is
actually--
there are several things that
have to be there for it to
happen and let's just kind of
inventory those.
 
First is, you have to have an
open market.
It has to be a market where
people can come in and begin to
produce, or arrive and begin to
consume.
If it is regulated,
for example,
by tariffs or by a mafia,
then that is the visible hand,
and the invisible hand is
blocked from its work.
There needs to be no seller big
enough to drive down--to control
prices by, say,
withholding product.
There needs,
third, to be no buyer--I've
left out a step--no seller and
no buyer able to control prices.
What would make that--what kind
of distribution of production
and buying would be required to
do that?
Somebody near a mic.
 
Got a mic?
 
Student:  A monopoly.
 
Prof: A--
Student:  A monopsony
and a monopoly.
 
Prof: Okay,
those are the things you don't
want if you want the invisible
hand to work,
right?
 
What you want is somebody else?
 
Student:  Perfect
competition.
Prof: Yes?
 
Student:  Perfect
competition.
Prof: Okay,
and perfect competition occurs
when what?
 
Student:  When no buyer
is big enough to control the
market.
 
Prof: Okay,
but that's circular.
So we need to put one step in
between there.
Student:  When prices
are independent.
So the market itself sets the
price.
Prof: Well let's work at
this.
I showed a picture when I
started this of a wheat field
and I didn't show a picture of a
car factory or Microsoft.
The key fact is that you have a
fine grain division of
production and consumption so
there are thousands and
thousands of producers,
thousands and thousands of
consumers,
no one of them big enough to
game the market.
 
If you're making--if you're
producing wheat or rice,
and you say,
"The world price is too
low.
 
I'm going to drive it up by
withholding this year's crop
from my 100 acres,"
that's like,
"Hit my hand,"
because you have no market
power.
 
No producer holds a pivotal
private technology.
And it's pretty obvious what's
meant by that;
a patented technology,
or a trade secret which allows
one producer to differentiate
him or herself from other
producers and dominate the
market.
There are the buyers.
 
And perfect information,
more or less truthful
information across the whole
market, and government to
enforce property and contract.
 
So with all those conditions in
place, what Smith says about the
invisible hand is,
more or less,
true.
 
Let's see if I can find the
quote.
He talks about producers who
are in this,
"And many other cases,
led by an invisible hand to
promote the end,
which they have no part of in
intention.
 
By pursuing his own interest,
he frequently promotes that of
society more effectually than
when he really intends to
promote it.
 
I have never known much good to
come from people trading in the
name of the public good."
 
The--on both the producer and
the consumer side,
there is a peculiar power
vacuum.
There is no one who can be said
to have set the price of the
good or determined its quality.
 
It is decided collectively,
and the Smithian idea there is
actually the idea of general
equilibrium in a market economy.
The next phase of economic
theory,
neoclassical economics,
formalizes this idea and makes
it mathematically precise,
and we'll look at it in a
little while,
but here it's important,
first, just to get the context
in which Smith writes about the
invisible hand in The Wealth
of Nations.
Anybody able to provide us with
the exact point he's trying to
prove?
 
Is there a hand somewhere?
 
You're trying to set this guy
up, I know that.
Was there?
 
Wave it please.
 
Yes, you need the mic.
 
Come on, guys,
we got to manage the mic
better.
 
Where is it?
 
Student:
>
Prof: Just--it doesn't
work without the mic.
Would one of you guys,
just, kind of,
stay standing and get it to
people?
Student: 
>
point that nations shouldn't
impose tariffs.
Prof: Okay,
he's arguing against tariffs
and for free trade,
right?
And why do--why is that an
argumentative point for him?
Why are there tariffs?
 
Student:  Because the
nations thought that they were
protecting their economies by
enforcing
>
 
Prof: Okay,
and who were they helping to
reach that--who helped the
nations to reach that
conclusion?
 
Student:  Other
economists?
Prof: Well,
yeah, sort of.
I'm fishing for something a
little different.
Let's pass the mic over to--is
it "The violin
question?"
 
"The viola question;"
okay, my wife is a violist.
Student:  Well,
I guess the predominant
economic philosophy at the time
when Adam Smith was writing was
mercantilism--
Prof: Mercantilism, yes.
Student: 
>
mercantilism,
which is, you know,
accumulate as much gold as
possible;
become the richest,
you know, individual through
that regard,
which means,
you know, not really importing
much,
and thus, really focusing on
supporting domestic development.
Prof: Okay,
good, that's excellent.
Smith was anti-mercantilist.
 
He was a free trader.
 
And the people who had a
concrete interest in tariff
imposition--who would have a
strong self interest in that?
Let's get the mic over here.
 
I think one of you TAs really
needs to just stand up and MC
the thing.
 
Student:  Domestic
merchants and manufacturers.
Prof: Well,
certainly manufacturers,
right?
 
Domestic manufacturers,
who are in some way or another,
not competitive with imports.
 
And Smith has this wonderful
passage, I think it's near this,
where he talks about how you
could, in Scotland,
produce good wine.
 
You'd have to have hot houses
and many other special and very
expensive accoutrements.
But for about thirty times the
price--the production price of
France, Spain,
or Italy, you could produce
Scottish wine.
But it would be a foolish
betrayal of the public interest
to put up a tariff so that you
could then sell that wine,
worth $2, for $200.
 
And that's the center of his
argument, right.
He begins at the micro level
with the butcher,
the baker, and the brewer,
which is a metaphor that rings
true for most of us,
right?
Why is the produce fresh in the
little market on Orange Street
in New Haven?
 
The main reason is because
there are two little markets in
New Haven.
 
If it were just one,
thirty-six hour old lettuce
would be marketable.
 
But with two,
one of whom drives to New York
every morning at 3:00,
that just doesn't work.
So that Smith talks about the
self-interest axiom as the
driver for promoting the common
good.
Now I'm going to invite Jim
Alexander to come on up and
we'll just stand and--let's
actually sit and talk.
Some of you have been
introduced to Jim Alexander,
and for others,
I'll introduce him now.
Jim is a good friend,
and was--had a twenty year
career in investment banking,
and after that a stint as Chief
Financial Officer of Enron
Global Power &
Pipeline,
which was indeed one of the
famous partnerships in the Enron
meltdown.
He was a straight shooter;
as the best book on the Enron
meltdown calls him,
the "fly in the
ointment,"
and went off to co-found
Spinnaker Exploration,
which later became a public
company.
 
Jim is going to be part of this
course from time to time and I
thought maybe,
to bring the discussion down
from the clouds here,
I would ask Jim:
Is the ghost of Adam Smith
alive in the boardroom in
corporate America?
 
Jim Alexander:
 Well, the self-image of
Adam Smith is alive.
 
The ideology that would be
espoused is that of Adam Smith.
The substance is not there,
I believe, but most of the
people would pass the polygraph
test that they believe it's
there.
 
Prof: Okay, that's good.
 
Now let's--here's an
interesting exercise.
There are about a dozen MBAs in
the group here.
Every MBA--every MBA period,
has learned the Porter Forces.
What are the Porter Forces?
 
The Porter Forces are the rules
of thumb you need to make above
average profits within a firm.
 
One of them is:
You don't want too much
competition--direct competition.
 
Direct competition erodes
profits.
You want high barriers to entry.
 
You don't want powerful buyers
who can drive down your price
through negotiating.
 
For example,
tire companies face very
powerful buyers in automobile
manufacturers.
You want to avoid situations
like that.
You also want to be able to
control your suppliers so they
can't see you making profits and
then demand their share.
Now just think for a second.
 
How do the Porter Forces align
with the conditions that I
sketched five minutes ago for
the operation of the invisible
hand?
 
In the back,
you've got to be really loud
because the--
Student:  They're the
exact opposite.
 
Prof: They are
essentially the exact opposite.
The name in business speak for
operating under the control of
the invisible hand is
"commodity hell."
Commodity hell being that
you're producing something which
thousands of other people can
produce,
and they can produce it as
cheaply and as well as you can,
and so the available pricing
strategies to you are--
none of them involve high
profits.
One of the fundamental axioms
of business management--
and I'm not making a moral
condemnation,
I'm just making an observation
that there is a strong tension
here--
that the pursuit of actual--the
actual submission to the
invisible hand--
is contrary to the very basis
of corporate strategy.
Jim, talk a little from your
experience about the intelligent
use of the Porter Forces by
management strategists--or
unintelligent.
 
Jim Alexander:
 Well from the latter--
but basically no one ever wants
to get into an Adam Smith type
of market,
and if you're in it,
you get out of it.
 
Because there's--it's ruinous.
 
And the only way you can affect
change in that type of market is
to do what Adam Smith suggested,
and that is make some sort of
national security argument why--
in fact, while Smith's views
are very well and fine in
general,
you need, and the country more
especially needs,
to have defense against foreign
imports or ruinous competition.
I think the sugar producers
were able to pull that off
pretty neatly and can make a
national security argument for
it for sugar quotas,
but you never tolerate an Adam
Smith level of competition.
 
Prof: Okay,
and if you look at--
I ordered Thank You For
Smoking,
Christopher Buckley's book,
as an option for this course,
but I'm told all of you have
seen the movie,
which I haven't.
 
Is the movie any good?
 
Student:  Yes.
 
Prof: Okay,
you should all look at the
movie.
 
And the book is all about the
way corporations,
including those which make,
in this case,
cigarettes, booze,
and firearms,
but mostly cigarettes,
have elaborate representation
in Washington and promote their
own interests through the law.
It's not a big surprise.
 
But the tension between the
idealized theory of the market
and that practice is a very
strong one.
Incidentally,
Smith was very critical of the
corporations,
which existed in his time,
and he was critical of them for
partly the reason we just
articulated: That they can
control pricing and impose their
product by that method.
 
But more, Smith thought,
that the people running the
corporations,
which existed at that time were
thoroughly incompetent.
 
And that's, of course,
because the Yale School of
Management had not yet been
founded.
In actual fact there is a
fundamental problem about
corporations and their
management called the
principal-agency problem.
 
The gist of that problem is
that managers,
left to their own devices,
will tend to take a company
where--
in a direction which is best
for them individually and not
necessarily for the broad body
of shareholders,
and so the control over that
tendency gets to be one of the
major dramatic themes in
business life.
 
Jim you've been near some
management, which had rent
seeking tendencies.
 
Jim Alexander:
 Well, let me come back to
something else,
and that is that at least one
of the sections Smith has
revolves around the butcher,
the brewer, and the baker,
and how it's much more reliable
to rely on their self interest
than their benevolence,
which is true.
 
There is--I think there is an
embedded assumption which he
doesn't go into,
and that is:
he cites examples of what are--
at least at the time,
where a single proprietor sort
of business is marketing a
product which was directly
consumed by individuals who knew
the proprietors well,
and understood what good meat
was from meat that wasn't good.
 
And that also is increasingly
irrelevant since his time,
because one of the most
important things,
I thought, in one of your
slides, was that there be
perfect information.
 
And on top of that,
an embedded assumption there is
that there has to be perfect
information perfectly
understood.
 
Prof: Absolutely.
 
Jim Alexander:
 In fact one of the--
and having come from finance,
it's sort of the highest form
of art is to have information
which in retrospect can be
defended as reliable,
but prospectively is virtually
meaningless.
 
One of the ways we can--that it
really becomes very important in
practice,
forget about Smithian ideals,
is to make sure that you have
colorable information,
colorable voluntary
transactions,
but in fact,
they are, practically speaking,
not voluntary,
and, practically speaking,
not informed.
 
On top of that you start having
principal-agent issues.
Let's take the butcher,
for example,
one butcher in a little village
deals with people he knows,
so there's social constraints,
and there's also--
it's fairly easy if it's one
butcher,
to trace any illnesses that
result.
And he has a relatively
unmarketable asset,
which is his interest in his
private butcher shop;
very hard to sell,
so he must count on long term
profit maximization;
not short term, but long term.
Now let's imagine that you had
a--I don't think (inaudible)
processer is public at this
point but let's imagine that you
had a butcher business which was
owned by the public,
controlled by a small group of
managers.
And furthermore let's assume,
and it's actually a pretty good
assumption,
that you had a group of
semi-knowledgeable mutual fund
managers who rewarded people
with huge gains in their share
value if they were able,
reliably, to hit their
quarterly earnings estimate and
punish them,
of course, if anything went
wrong.
 
Under those circumstances,
assuming that the investing
public really didn't understand
the dynamics of the business,
and assuming that you could
make satisfactory short term
goals,
maybe making 100 times the
average income of the typical
worker every couple weeks,
then you would be incentivized,
unless you were very risk
adverse to,
for example,
being able to buy tainted meat
and then be able to make some
extra pennies,
beat your numbers,
get a big upgrade in your
stock,
if you have a lot of options
you have a very highly leveraged
wealth situation,
then make enough money in the
short term,
where you could live--maybe buy
a small country or live with
gravy for the rest of your life
on a basis which was
sufficiently confusing that
you're unlikely to be
prosecuted.
That's my experience as to how
it works.
I realize that it's a small
sliver and it is oriented toward
finance,
which is the worst part of
American business,
but that's in fact how I've
seen it work.
 
No theories,
it's just how it works,
so people believe,
and yet the same people who
would do this would spout and
believe every bit of it the same
type of Smithian idealism you
see here: the invisible hand.
My experience is that the
invisible hand typically is
picking someone's pocket,
not creating value.
And in fact,
the last--I remember talking to
the senior Republic staffer at
The House Energy and Commerce
Committee and making--
Prof: Jim is,
by the way, I believe you are a
Republican.
Jim Alexander:
 Used to be.
Prof: Okay.
 
Jim Alexander:
 Used to be;
this is kind of why I used to
be.
I'm up talking to the lead
Republican staffer at The House
Energy and Commerce Committee
and saying at one point that
capitalism justifies itself by
creating real,
not illusory, value.
 
To which he replied,
"Well you're nothing but a
communist."
 
That, in fact, is the problem.
 
Under Smithian assumptions
about long-term honesty,
long-term interests in real
value creation,
it worked perfectly.
 
It's just that when those
assumptions start to erode,
it turns into a nightmare.
 
Prof: Okay terrific.
 
Georgios, I'm going to call on
you in a moment for a one
sentence read.
 
Here's the proposition that we
now want to look at.
Smith--here's an apparent but
not real paradox.
Adam Smith says self-interest
is the main motive for what
people actually do.
 
And yet, he led a life,
which didn't begin to maximize
his own material interests.
 
He lived modestly,
he worked diligently,
and he never became a wealthy
man, so if he believed it for
mankind,
how come he didn't practice it
for himself?
 
Well, Richard--
Student:  I just wanted
to add I think it's probably the
way you define self-interest.
Self-interest to one person may
not be the same to another,
so while you just associate it
with wealth and material goods,
to someone else it's not
necessarily someone else's
definition of self interest.
 
Prof: Fair enough,
that's a good point.
The other side of it is that
Wealth of Nations was
Smith's second main book,
and it wasn't the book,
which made him famous in his
own lifetime.
The Theory of Moral
Sentiments is the book,
which made him famous in his
own lifetime.
And Georgios,
will you read us,
please, in good strong voice,
the first sentence of Smith's
first book?
 
Thanks very much Leslie.
 
Student:  "How
selfish, so ever,
man may be supposed,
there are evidently some
principles in his nature which
interest him in the fortune of
others,
and render their happiness
necessary to him,
though he derives nothing from
it except the pleasure of seeing
it."
Prof: Okay,
now read it one more time.
Student:  "How
selfish,
so ever, man may be supposed,
there are evidently some
principles in his nature which
interest him in the fortune of
others,
and render their happiness
necessary to him,
though he derives nothing from
it except the pleasure of seeing
it."
Prof: Okay,
so Smith actually believed that
we were a complicated mix,
and I think he's right.
He believed that there is a
pro-social element in almost
every human being.
 
There is an innate sympathy for
others, which almost everyone
has, and at the same time,
a tendency to feather one's own
nest.
 
Now I don't know anyone who is
just one of those two things.
I don't know anyone who is a
pure egotist.
Jim Alexander:  Me.
 
Prof: You do?
 
My goodness;
not even generous to his aged
mother or--
Jim Alexander:
 What's she done for him?
 
Prof: Okay,
well there may be some but
there aren't a hell of a lot.
 
Smith--this is characteristic
of Smith--Smith is not a
dogmatist.
 
Smith is a careful observer who
draws as much from the evidence
as is there.
 
Now this is a map which links
Smith forward to the next
historical period,
namely the period when world
trade got serious,
and the period,
which we will discuss in
Monday's class,
when Marx and Engels were
writing The Communist
Manifesto.
 
The picture on the board is the
world railroad grid,
and if you think about Smith's
story about how wealth depends
on the division of labor,
it works only where you have a
large market,
and he makes that point at
length.
 
In the period,
which begins in the middle
1800s,
it really begins about 1840,
in that period really large
markets became accessible to
everyone located in the dense
part of the world railway grid.
And toward the end of the
semester, we'll be dealing with
the problem of economic
development in places like
these.
 
If you look at the way the
railroads developed there,
they all developed to reach
ocean ports for the export of
products to world markets.
 
The density of connection
required for the internal
development of large markets was
by and large missing.
Okay, now--I think I'll just
finish with Adam Smith's story
about the pin making,
and what happened in the
pin-making story.
 
I actually didn't have you read
this because it's something
everybody--I think everybody
learns this one in high school.
The division of labor for Smith
is illustrated by a group of
artisans making pins.
 
One person gets really good at
drawing the wire out straight,
another person at hammering a
head onto the wire,
another person at making the
point sharp,
another person at polishing the
shaft.
And by division of labor and
development of expertise,
they can produce more pins of
higher quality than a single
artisan doing each of those
operations by himself could
possibly have done.
 
It's a good illustration.
 
And if you think about all the
professions and occupations in
an economy,
that kind of profiting--that
way of profiting from
specialized expertise is
foundational to market
societies,
foundational to their wealth.
 
Now the actual fate of the pin
machine is interesting,
and personal to my family.
 
It turns out that in 1831,
a New York physician named John
Ireland Howe began to tinker
with the idea of making a
machine where wire went in one
end and polished pins came out
the other in their thousands.
 
By 1851 he perfected what was
called the Howe Pin Machine.
There's a room in the
Smithsonian to this day where a
Howe Pin Machine sits and a
movie of its operation goes on
behind it.
 
Well John Ireland Howe,
I won't brag again in this
semester,
was my five over great
grandfather,
and the family began pissing
away the money right away,
and completed the task just in
time for my birth.
 
The slides include a
formalization of equilibrium
theory with an Edgeworth box and
indifference curves,
and all that,
but I don't think we have time
to do them here,
and I urge you to review them
before the midterm,
on ClassesV2.
On Wednesday--on Monday,
rather, we'll do The
Communist Manifesto,
and on Wednesday we'll do Hayek
and The Constitution of
Liberty,
so we'll see two ends of the
ideological perspective in a
single week,
and after that we'll spend four
straight weeks on business
cases.
back to top
 
 
 
