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Following Adam Smith’s vision of a self-regulating moral economy the focus turned toward these self-regulating features and away from moral concerns. The chapter traces the development of the classical and neoclassical economists who emphasized the rational discovery of underlying natural principles in a social order and the fitting of human law to those principles. The Industrial Revolution brought with it issues of income distribution and controversy over whether poor people should receive public assistance. Population growth was viewed by many as an inevitable deterrent to increases in living standards. Bentham’s utility view of value and Marshall’s merging of supply and demand cemented the neoclassical view of value and left moral questions to the philosophers and theologians. Finding equilibrium states rather than economic processes became the research agenda. Vignettes on “Alfred Marshall and the Value of Something” and “Mill: The Life of Homo EconomicusIs Depressing at Best” conclude the chapter.

This chapter explores US anti-trust law experience and its influence on thought, expectations, and interpretations of competition law around the world. US anti-trust law has been at the center of competition law development since the end of World War II, and it continues to play the central role in global competition law development. In particular, the centrality of neo-classical economics in US anti-trust law is a controversial and critically important issue for many. Countries everywhere have looked to US law in shaping their own competition law decisions. Moreover, it is the lens through which US officials, scholars, and practitioners have viewed competition law in other countries and on the global level, and this further enhances the need for others and for the US anti-trust community to understand that lens and its influence.

This concluding chapter explains the heterogeneity of ‘classical economics’, and locates him in his true category of economic thinkers. It discusses the errors in his scientific method, the merits of his moral theory, and the relevance of his economics.

This chapter begins by examining the Lucas model (1973), the ‘down-to-earth’ (Phelps 1990:42) version of Lucas' (1972) pioneering article on Expectations and the Neutrality of Money. It then discusses some subsequent developments in new classical economics. It explains that new classical economics introduces rational expectations into macroeconomics. It notes that the rational expectations assumption is essential for policy effectiveness. It discusses that under rational expectations, wage setters take into account that the AD curve shifts outward. It clarifies that in order to achieve the target wage or employment level, they raise wages in such a way that the AS curve shifts to the left such that the intersection with the new AD curve occurs at the natural state of output.

This chapter begins by discussing that business cycles came to be regarded as such in the nineteenth century. It then enumerates five schools of thought which provide alternative explanations for business cycles: Keynesian economics, monetarism, new classical economics, the RBC theory, and new Keynesian economics. Subsequently, it explains that business cycles can be viewed as disturbed sine wave-like movements in aggregate production. Otherwise, business cycles can be characterized with the statistical properties of observed time series for aggregate output: aggregate production displays variability, persistence, and reversion. Moreover, as suggested by Frisch, business cycles can be modeled by means of stochastic second-order difference equations. The solution to a stochastic second-order difference equation can be viewed as a disturbed sine wave. For appropriate parameter values, it features variability, persistence, and reversion. Lastly, it discusses that the co-movements of many macroeconomic variables show a high degree of conformity with GNP.

The purpose of this chapter is to examine the logical foundations of typical views of distributive justice––as well as being significant in its own right, the examination will provide a basic viewpoint from which to investigate, in each of the later chapters, how the distribution of income and wealth is determined. Section 2.1 explains the marginal productivity hypothesis as the principle determining income distribution through markets, and then examines where within this mechanism the problem of justice arises. In Sect. 2.2, various conventional criteria of distributive justice are presented that have been proposed in the past; while all of these criteria are intuitive, they provide an important starting point for the investigation. In Sect. 2.3, Mill's theory of utilitarianism, which was intended to satisfy diverse criteria, is stated, and then the theories of the material welfare school are examined, in particular those of Marshall and Pigou, who taking the spirit of utilitarianism as their basis, developed classical economic analysis further. Section 2.4 deals with the Rawls's principles of justice, providing in‐depth coverage of the method of moral philosophy––which is the foundation of the principles as well as its implications––and the final section presents a summary and conclusions.

The second face of transparency, namely the inevitable trend toward the rise in the interdependence of decision making that comes with perfect information, is causing old economic models to fail. Perfect information does not lead to perfect markets, as many real-world observations and practical examples can confirm. In order to make sense of a pile of conflicting theories and observations, the author realized that she had to start with investigating what the actual consequences of perfect information might be. Why and how, e.g., could extraordinary profits be feasible even in the face of perfect information? In so doing, the book really asked whether it was economic theory itself that needed to be rethought. This chapter explains that there is indeed a serious flaw at the heart of mainstream classical economics. Economic theory does need to be rethought in the light of perfect information and the interdependent decision making that it causes.

This chapter discusses the early chapters of The Affluent Society dealing with the history of orthodox economics. Galbraith’s aim here was to establish the long tradition in which economists have focused on the central fact of scarcity and the associated need to escape its grip. Implicit in this tradition is the limited economic role for government. The general acceptance of Keynesian ideas in the years after World War II allows Galbraith to dismiss the overriding concern of economics with scarcity to re-focus on the pressing issues of affluence that form the substance of his book. This chapter then outlines the increasing attack on orthodox economics that has unwound over the past 50 years, the first shot of which can be said to have been fired by Galbraith and the final(?) dénouement unleashed by the global financial crisis in 2008.

Because of the Great Depression that hit the United States during the early 1930s, Keynes was able to conclude in his work entitled General Theory that institutions of a market economy cannot always attain full-employment equilibrium. While this book was able to provide the basis for researching fluctuations in the economy during the 1940s, the classical economic ideologies remain rooted in competitive equilibrium wherein “competitive” may refer to a monopolistic economy or to one with a perfectly competitive market. While Milton Friedman asserted that “competitive” meant “perfectly competitive,” another issue arose regarding how the word “equilibrium” proved to be more relevant than “disequilibrium.” In this chapter, we look into how models which are based on market equilibrium fall short in explaining short-run fluctuations in output and employment. We explore the real business cycles through applying macroeconomic data to competitive equilibrium dynamic theories.

This chapter examines changes in the intellectual condition in England during the period from 1770 to 1870 and the important implications of this for freedom of contract. The intellectual background of legal developments during this period was dominated by two bodies of thought. The first came from classical economics and was associated with Adam Smith and his followers, and the second was the body of thought called utilitarianism which was associated with Jeremy Bentham and his followers. This chapter compares the philosophies of Smith and Bentham in economic matters.

This chapter examines the low estate to which modern economics has descended or is widely thought to have descended. John Maynard Keynes made the most famous forecast of the future of economics more than half a century ago, in which he concluded that “the economic problem is not—if we look into the future—the permanent problem of the human race.” Keynes's prediction has turned out to be less than accurate. While some of the formerly powerful economic influences are diminishing in the industrial countries, the production of goods is a far less urgent matter than it was. The chapter considers a range of forces that holds economics to the classical tradition and that will continue to do so, including the power of economic interest and the fact that classical economics solves the problem of power in the economy and polity.

This chapter examines Karl Marx's critique of the classical tradition in economics. The classical tradition postulated an equilibrium that would come to be known as equilibrium economics. No change occurred in the basic relationship between employer and worker, between land, capital and labor. The change in the supply of labor and capital only gave rise to a new and similar equilibrium. Understanding that final equilibrium was the essence of economic science. The chapter considers Marx's rejection of the most fundamental assumptions of classical economics. It first discusses Friedrich Engels's influence on Marx before analyzing Marx's views on capitalism and other subjects such as distribution of power, wages, unemployment, labor, production, and property rights. It concludes with an assessment of the flaws of the Marxian system.

The purpose of Part II of this book is to explore, at a more concrete level, the relationship between law and capitalist social relations, through a close genealogical study of the social category of the wage. This means tracing the evolution of this category through legal discourse, as capitalism developed in the United Kingdom. Chapter 4 will lay the groundwork for this analysis by specifying the methodological assumptions underpinning this genealogical analysis, while exploring, in more detail, how the contradictions inherent in capitalism manifest in the social category of the wage. The first section explains the nature, and importance, of ‘genealogy’. The second section explores two different conceptions of the wage in economic theory, with a view to teasing out the nature and significance of the wage as a social category and the contradictory functions it performs in capitalist society. The third section discusses the relevance of these ideas to our understanding of law’s role in relation to wage regulation, and employment status, by showing how approaches to these questions are influenced by legal actors’ beliefs about law’s ontology.

Following the rise of the state, religion served to legitimate societies’ institutions, practices, and unequal distributions of income, wealth, and privilege. However, emerging capitalism and its expanding bourgeoisie in Western Europe challenged the Catholic Church’s monopoly on truth and meaning, opening space for secular legitimation. The science of political economy increasingly evolved as a principal body of social thought legitimating inequality. This transfer from religion to political economy begins with the mercantilists and is mostly complete by the end of the nineteenth century. Political economy’s principal inequality-legitimating doctrines include the utility of poverty, the justice of the invisible hand, the Malthusian population doctrine, the wages-fund doctrine, and the trickle-down thesis. Most of these doctrines take on more of a patina of “natural” science in the late nineteenth century when the neoclassical revolution in economics attempted to sever economic science from morality and politics and express itself technically with calculus.

The author begins a review of 10 different theories of value with this chapter on classical economic thought. The labor theory of value dates as least as far back as Adam Smith and the 18th century, and may have independently been articulated by the Indian sage Kautilya in the 3rd century BC. The author observes that the labor theory fails to explain the actual determination of prices in a market economy, but still provides valuable insight into human behavior in the modern economy.

This chapter examines the American preoccupation with money. While there was little concern in the United States for the central themes of classical economics or for the Marxian and other forms of criticism against it, there was an intense discussion of various practical economic topics such as tariffs, monopolies, and questions relating to money. The chapter first considers the debate over tariffs and tariff protection in nineteenth-century America involving figures such as Alexander Hamilton, Henry Clay, and Henry Carey before discussing issues pertaining to trade, monopolies, trusts, and competition. In particular, it looks at the Sherman Act and other antitrust legislation. It also analyzes the Social Darwinism of Herbert Spencer that provided a defense of the classical ideas in the United States. The chapter concludes with an assessment of the contributions of Henry George and Thorstein Veblen to the debate on classical economics.