Lambert here: The CORE Project looks interesting. I went over to the CORE teaching materials (log-in, sadly, required, but instant and free) and looked at the PDF for the first chapter. Here’s the definition of capitalism:
Capitalism is an economic system: it is a way of organizing how we produce and distribute the goods and services that make up our livelihood. Two characteristics define this economic system. First, the people who produce goods and services are employed for wages or salaries. This means that they are paid for the time they work for their employer. This could be an hourly or monthly wage or an annual salary. They do not own the goods they produce, and they work under the direction of their employer. We use the term wage labor to describe this characteristic.
The second characteristic of capitalism is that those who direct the production process do so with the intention of making a profit by selling the output that the workers have produced at a price that exceeds the cost of producing it. We call this characteristic production for profit.
I like the CORE slogan: “Teaching economics as if the last three decades had happened.”
By Rajiv Sethi, Professor of Economics, Barnard College, Columbia University. Cross posted from his blog
Back in October 2012 I got an unexpected email from Wendy Carlin, Professor of Economics at University College London, asking me to join her and a few others for a meeting in Cambridge, Massachusetts, to be held the following January. The goal was to “consider how we could better teach economics to undergraduates.” Wendy motivated the project as follows:
People say that altering the course of the undergraduate curriculum is like turning around a half a million ton super tanker. But I think that the time may be right for the initiative I am inviting you to join me in proposing.
First the economy has performed woefully over the past few decades in most of the advanced economies with increasing inequality, stagnant or declining living standards for many, and increased instability. Second, in the public eye economics as a profession has performed little better; with many of our colleagues offering superficial and even incorrect diagnoses and remedies. Third, what economists now know is increasingly remote from what is taught to our undergraduates. We can teach much more exciting and relevant material than the current diet… Fourth, the economy itself is grippingly interesting to students.
I think that a curriculum that places before students the best of the current state of economic knowledge addressed to the pressing problems of concern… could succeed.
I attended the meeting, and joined a group that would swell to incorporate more than two dozen economists spread across four continents. Over the next eighteen months, with funding from the Institute of New Economic Thinking, we began to assemble a set of teaching materials under the banner of Curriculum Open-Access Resources in Economics (CORE).
A beta version of the resulting e-book, simply called The Economy, is now available free of charge worldwide to anyone interested in using it. Only the first ten units have been posted at this time; the remainder are still in preparation. The published units cover the industrial revolution, innovation, firms, contracts, labor and product markets, competition, disequilibrium dynamics, and externalities. For the most part these are topics in microeconomics, though with a great deal of attention to history, institutions, and experiments. The latter half of the book, dealing with money, banking, and aggregate activity is nearing completion and is targeted for release in November.
It is our hope that these materials make their way in some form into every introductory classroom and beyond. Instructors could use them to supplement (and perhaps eventually replace) existing texts, and students could use them to dig deeper and obtain fresh and interesting perspectives on topics they encounter (or ought to encounter) in class. And anyone interested in an introduction to economics, regardless of age, occupation or location, can work through these units at their own pace.
The unit with which I had the greatest involvement is the ninth, on Market Dynamics. Here we examine the variety of ways in which markets respond to changes in the conditions of demand and supply. The focus is on adjustment processes rather than simply a comparison of equilibria. For instance, we look at the process of trading in securities markets, introducing the continuous double auction, bid and ask prices, and limit orders. We examine the manner in which new information is incorporated into prices through order book dynamics. The contrasting perspectives of Fama and Shiller on the possibility of asset price bubbles are introduced, with a discussion of the risks involved in market timing and short selling. Markets with highly flexible prices are then contrasted with posted price markets (such as the iTunes store) where changes in demand are met with pure quantity adjustments in the short run. We look at rationing, queueing and secondary markets in some detail, with reference to the deliberate setting of prices below market-clearing levels, as in the case of certain concerts, sporting events, and elite restaurants.
I mention this unit not just because I had a hand in developing it, but to make the point that there are topics covered in these materials that would not ordinarily be found in an introductory text. Other units draw heavily on the work of economic historians, and pay more than fleeting attention to the history of ideas. The financial sector makes a frequent appearance in the posted units, and will do so to an even greater extent in the units under development.
But far more important than the content innovations in the book are the process innovations. The material was developed collaboratively by a large team, and made coherent through a careful editing process. It is released under a creative commons license, so that any user can customize, translate, or improve it for their own use or the use of their students. Most importantly, we see this initial product not as a stand-alone text, but rather as the foundation on which an entire curriculum can be built. We can imagine the development of units that branch off into various fields (for use in topics courses), as well as the incorporation of more advanced material eventually making its way into graduate education.
So if you’re teaching an introductory economics course, or enrolled in one, or just interested in the material, just register here for complete access without charge. We will eventually set up instructor diaries to consolidate feedback, and welcome suggestions for improvement. This is just the start of a long but hopefully significant and transformative process of creative destruction
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What I would like to see in economic teaching is whatever the endeavor the environment take a leading role in theory. A major reason for accelerating global warming has been the direct result of economic theory of race to the bottom, lower cost is better for you, etc… We need the cost to the environment built into economic theory.
John hits the nail on the head. If we don’t start including costs (and benefits) to the environment in our basic conception of economics we are sunk.
Considering social costs would also wise and necessary.
How can models such as Integral Accounting methods (described at http://www.m-cam.com) be incorporated? Or at the very least, triple-bottom line accounting methods?
The way we think about economics needs a more comprehensive overhaul. If we offer a better approach that nonetheless preserves conventional bottom-line thinking, this is a disservice dressed up as an improvement. It’s just another version of brainwashing: thinking inside a somewhat nicer-looking box.
‘True Cost Economics’ would eliminate much destruction of our natural world and unnatural consumption growth (like a cancer cell).
Would Ikea now be deforesting Romania if they had to pay societal and environmental costs for that destruction?
When the damage is utterly irrevocable, the realization will hit that we can’t drink, eat or breathe money.
The CORE definition of capitalism ignores the importance of human nature. All institutions, including capitalism, reflect the human natures of those humans who control them. Currently our economic system is controlled by tyranni who naturally work against the common good. I call this tyranno-capitalism. The other possible form of capitalism is democrato-capitalism, which is controlled by democrati who naturally work for the common good. This dichotomy applies to all our institutions: governments, political parties, religions, etc.
So, the nature of human nature, its effects on our institutions, and on our own personal behavior should be a constant element of any education system, but we have never included it. Usually when people bring up this concept they are attacked by those who want to maintain the status quo, and those are usually tyranni. Human history is replete with examples of institutions that work against the common good. Our national conversation is all about different examples of tyranno-behavior on the behalf of those in control of our institutions. From campus rape, to Ferguson, to the armed militias patrolling the Rio Grande in Texas, to the Supreme Court, to the House of Representatives, to Hobby Lobby and more, the list is long and growing of human beings who are in power and who act against the common good. The deniers of science and global warming are threatening to collapse our civilization, and yet they are only doing what comes naturally—to them.
So, capitalism, especially capitalism because it is a system of human interactions, is vulnerable to takeover by tyranni and it can easily be seen. The last several years have revealed tyranni to our view in all kinds of financial institutions and yet we ignore human nature. The foibles of human nature must be taken into account in designing and managing any institution and yet we don’t do it.
This failing will destroy our civilization unless we act swiftly. In the past we could recover from the excesses of tyranni such as Alexander the Great and Hitler and others, but Nature was able to cover over the scars. Now it may be too late. We have overwhelmed the curative powers of Nature and there is no institution that has the power or the willingness to help Nature help us.
Any text should list human nature as the first element of actors in market economics. And, should emphasize that it is all gambling, is predicated on cheating and theft, and is under the thumb of fraudulent and criminal riggings of said market(s).
No market is level, no market is not gamed. Ergo, no market is efficient, and no market is free. Human nature is to rob, cheat, and steal.
I would say if economist could agree on terminology it would correct the problem of difference of opinion on what is or is not the cause of a problem.
Agreeing on what is or is not the cause of a problem may be a pipe dream for now. The response to a cause is usually delayed by an indeterminate amount of time. The economy is a highly complex, non-linear system with many causes and reactions happening at the same time. The economy, as in any other activity involving humans, is made up of people who read the explanations of what they are doing, and can change their behavior depending on what they learn from what is said about them. This is Soros’s reflexive property. You can build a complex model of the system, and see if the model behaves the way the real world does. That still does not prove that the model has got the causes correctly identified. If another model with different causes also matched reality as well as the first model. That would just show that the definition of the causes that will match reality is not unique.
Only if you can find a model that uniquely matches reality with outstanding accuracy, far and away better than other models, do you have the beginning of the ability to say that you can identify causes with any certainty. This is a goal to which economists ought to aspire.
The most important piece missing from Economics is the game of a platonic theory and the one of practice. In practice, employees are disabled by organizational compartmentalization necessary for a former and disappeared industrialization economy that requires robots to complete designed processes with a vanishing need for educated human judgments. At points of inflection like the current post-industrialization process, the risk-takers gain advantages by ignoring compartmentalization and become the survivors and thrivers. It’s an educational wonder that students are not well taught that risk-taking and personal investment is rewarded and non risk-takers are fundamentally not entitled to excess rewards and get over it.
Economics is a result of doing things where the math works for most players. When the math of thermodynamic transactional results is skewed toward directed extraction and imbalance, it’s time to put down the Economics pipe theory and self-economize one’s practices. Extremism in the pursuit of economic freedom is no vice; moderation in the pursuit of economic justice is no virtue.
As a friend once told me, “In theory, practice and theory are the same, but in practice they are not.”
Nat, you have a very nice and plausible theory of how the world works. In reality that is not how it works for the majority of the wealthy. Have you not heard that our system is set up to socialize the risks, but privatize the rewards? The wealthy buy the government to change the rules so that they can lie, cheat, and steal to make their money, and if it blows up in their faces, they get bailouts and get out of jail free cards? Is this the reality the rest of us are supposed to accept.
If you think Steve Jobs and Bill Gates got rich by taking risks, you have a lot of history of the high tech industry that you need to learn about. Much of their wealth was built on the application of raw economic power over the competition in ways that were both illegal and immoral. Steve Jobs got caught a couple of times, but he died before anyone had the chance to put him in jail. The EEC is constantly fining Microsoft for anti-trust violations, but they haven’t changed Microsoft’s practices very much, and Bill Gates has become a great philanthropist with the ill gotten gains he sucked out of the economy. And, no the world is not a better place for what they did. There were many technologically and creatively superior products that they drove out of the market with shady dealings that used to be illegal.
You are friends with Yogi Berra? Kudos to you, sir!
Rajiv, I hate to tell you this but your imposition of Google Chrome led to my not being able to access your program. Chrome froze, though your intro rumbled heroically on.
This endeavour is creating too many barriers to itself – mandatory browser choice, signups to “inkling” and “Core” etc. Just my two cents.
I tried to access the links in the article, and got: “web page not available.”
Can the author look into this?
Well, I have read the first few paragraphs of the book. What a load of crap. They make bold statements based on averages that are highly skewed by the few outliers in the distributions. This is a very bad way to start teaching anybody about anything. I am unable to get over this first reaction to read any more.
My, my, my. Did everyone get up on the wrong side of the bed today? Grouchy, grouchy, grouchy.
I have just registered, downloaded, and briefly read the first 10 pages of chapter/unit 1. Good stuff so why the complaints? Not enough math? Too much anecdotal evidence, so this can’t be rigorous enough for the classroom? Quoting of Adam Smith, instead of mis-stating his words and his intentions? Don’t know, can’t say, but the criticisms so far are far off the mark.
I think efforts like this are really interesting. What is in most need of creative destruction is our system of higher education itself.
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I don’t like that definition of capitalism, though. It misses the most important parts of the system – which is the fundamental critique of economics of the past four decades or so. Most academic efforts, those funded by the Federal Reserve specifically and the state more generally, are stuck in the weeds precisely because the point is to be stuck, to not talk about the Big Picture. Precisely the thing that intro courses and laypeople ought to be exposed to and are most interested in exploring.
The most elemental aspects of capitalism include the human factors, that Jerry alludes to above, plus three other critical components that have ramifications for our system of political economy:
1) government enforced rule of law
2) government enforced property rights
3) limited government – not no government, but the default place for making choices is in markets, not government. This is why the phrase market-based economics is useful. The power of individual actors over centralized decision-making is the centrality of the insight of capitalism, but it’s not market-only economics. There is a role for government precisely because the psychopaths don’t like individuals making their own choices and some choices are made better collectively than individually (market failures).
It is these three things that are under fundamental assault by people who wish to consolidate wealth and power in fewer and fewer hands. And it is these three characteristics that help differentiate capitalism as a general idea vs.other options such as socialism or communism or despotism or anarchy or fascism or neofeudalism or oligarchy or whatever.
Wage labor and production for profit happen in pretty much any real world system, because that’s just a consequence of monetization, of the issuance and usage of currency for short-term storage and transactional purposes (as opposed to directly bartering labor for labor or the state directly owning the labor). Even prison labor in the US is paid a nominal wage. That doesn’t make it capitalism.
Human nature is not a fixed and immutable attribute or thing. Human nature has a biological base but its cultural expression is created within historically determined societal/community conditions. Human nature in a modern capitalist society is conditioned by that society and, it must be said, the ever-present organised and spontaneous opposition to the destructive tendencies within capitalism.