- Industry: Economy; Printing & publishing
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A 50 year-long business cycle, named after Nikolai Kondratieff, a Russian economist. He claimed to have identified cycles of economic activity lasting half a century or more in his 1925 book, The Long Waves in Economic Life. Because this implied that capitalism was, ultimately, a stable system, in contrast to the Marxist view that it was self-destructively unstable, he ended up in one of Stalin’s prisons, where he died. Alas, there is little hard evidence to support Kondratieff’s conclusion.
Industry:Economy
Corrupt, thieving government, in which the politicians and bureaucrats in charge use the powers of the state to feather their own nests. Russia in the years immediately after the fall of communism was a clear-cut example, with Mafia-friendly government members allocating themselves valuable shares during the privatization of state-owned companies, accepting bribes from foreign businesses, not collecting taxes from “helpful” companies and siphoning off international aid into their personal offshore bank accounts.
Industry:Economy
A branch of economics, based, often loosely, on the ideas of Keynes, characterized by a belief in active government and suspicion of market outcomes. It was dominant in the 30 years following the second world war, and especially during the 1960s, when fiscal policy became bigger-spending and looser in most developed countries as policymakers tried to kill off the business cycle. During the 1970s, widely blamed for the rise in inflation, Keynesian policies gradually gave way to monetarism and microeconomic policies that owed much to the Neo-classical economics that Keynes had at times opposed. Even so, the idea that public spending and taxation have a crucial role to play in managing demand, in order to move towards full employment, remained at the heart of macroeconomic policy in most countries, even after the monetarist and supply-side revolution of the 1980s and 1990s. Recently, a school of new, more pro-market Keynesian economists has emerged, believing that most markets work, but sometimes only slowly.
Industry:Economy
Much followed, and much misunderstood, German economist (1818–83). His two best-known works were the Communist Manifesto, written in 1848 with Friedrich Engels, and Das Kapital, in four volumes published between 1867 and 1910. Most of his economic assumptions were drawn from orthodox classical economics, but he used them to reach highly unorthodox conclusions. Although claimed and blamed as the inspiration of some of the most virulently anti-market governments the world has ever seen, he was not wholly against capitalism. Indeed, he praised it for rescuing millions of people from “the idiocy of rural life”. Even so, he thought it was doomed. A shortage of demand would concentrate economic power and wealth in ever fewer hands, producing an ever-larger and more miserable proletariat. This would eventually rise up, creating a “dictatorship of the proletariat” and leading eventually to a “withering away” of the state. Marx thought that this version of history was inevitable. So far, history has proved him wrong, largely because capitalism has delivered a much better deal to the masses than he believed it would.
Industry:Economy
After growing up in the Austro-Hungarian empire, in which he worked as an itinerant lawyer, Joseph Schumpeter (1883–1950) became an academic in 1909. He was appointed Austrian minister of finance in 1919, presiding over a period of hyper-inflation. He then became president of a small Viennese bank, which collapsed. He returned to academia in Bonn in 1925 and in the 1930s joined the faculty of Harvard. In 1911, while teaching at Czernowitz (now in Ukraine), he wrote the Theory of Economic Development. In this he set out his theory of entrepreneurship, in which growth occurred, usually in spurts, because competition and declining profit inspired entrepreneurs to innovate. This developed into a theory of the trade cycle (see business cycle), and into a notion of dynamic competition characterized by his phrase “creative destruction”. In capitalism, he argued, there is a tendency for firms to acquire a degree of monopoly power. At this point, competition no longer takes place through the price mechanism but instead through innovation. Perhaps because monopolies often become lazy, successful innovation may come from new entrants to a market, who take it away from the incumbent, thus blowing “gales of creative destruction” through the economy. Eventually, the new entrants grow fat on their monopoly profits, until the next gale of creative destruction blows them away. Ever controversial, and often wrong, in his 1942 book, CAPITALISM, SOCIALISM AND DEMOCRACY, he predicted the downfall of capitalism at the hands of an intellectual elite. He is associated with both Austrian economics and, arguably as founding father, evolutionary economics.
Industry:Economy
Some products or production processes have more than one use. For instance, cows can both provide milk and be eaten. If farmers increase the number of cows they own in response to an increase in demand for milk, they are also likely to increase, a little later, the supply of meat, causing beef prices to fall.
Industry:Economy
A much quoted, great British economist, not famous for holding the same opinion for long. Born in 1883, he studied at Cambridge but came to reject much of the classical economics and Neo-classical economics associated with that university. Keynes helped set up the Bretton Woods framework, but he is best known for his General Theory of Employment, Interest and Money, published in 1936 in the depths of the Great Depression. This invented modern macroeconomics. It argued that economies could sometimes be stable (in equilibrium) even when they did not have full employment, but that a government could remedy this under-employment problem by increasing public spending and/or reducing taxation, thereby increasing the level of aggregate demand in the economy. Many politicians picked up on these ideas. As President Richard Nixon observed in 1971, “We are all Keynesians now. ” However, it is much debated whether Keynes would have supported the way many of them put his thoughts into practice. Keynes identified the economic importance of animal spirits. Making and losing fortunes in the financial markets led him to refer to the “casino capitalism” of the stock market. He also noted that “there is nothing so dangerous as the pursuit of a rational investment policy in an irrational world”. He had an amusingly accurate view of the impact and transmission of economic ideas: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. ” As for the frequency with which his opinions would evolve: “When the facts change, I change my mind – what do you do, sir?” “In the long run we are all dead,” he said. For him, the long run was 1946.
Industry:Economy
The time taken to find a new job. Because some people will devote all their time to this search, there will always be some frictional unemployment, even when there is otherwise full employment.
Industry:Economy
The shape of the trend of a country’s trade balance following a devaluation. A lower exchange rate initially means cheaper exports and more expensive imports, making the current account worse (a bigger deficit or smaller surplus). After a while, though, the volume of exports will start to rise because of their lower price to foreign buyers, and domestic consumers will buy fewer of the costlier imports. Eventually, the trade balance will improve on what it was before the devaluation. If there is a currency appreciation there may be an inverted J-curve.
Industry:Economy
A Nobel prize-winning economist, James Tobin (1918-2002) theorized that firms would continue to invest as long as the value of their shares exceeded the replacement cost of their assets. The ratio of the market value of a firm to the net replacement cost of the firm’s assets is known as “Tobin’s Q”. If q is greater than 1, then it should pay the firm to expand, as the profit it should expect to make from its assets (reflected in the share price) exceeds the cost of the assets. If Q is less than 1, the firm would be better off selling its assets, which are worth more than shareholders currently expect the firm to earn in profit by retaining them. Tobin also gave his name to the “Tobin tax”, a (so far unimplemented) proposal to reduce speculative cross-border flows of capital by levying a small tax on foreign exchange transactions.
Industry:Economy
