COURSE OBJECTIVES

1. To provide the student with a comprehensive knowledge of the nature, foundations, and operations of a division-of-labor, capitalist society, with special emphasis on the institutions of private ownership of the means of production, competition, the profit motive, and the price system as the basis for economic coordination and economic progress. The consequences of government intervention with respect to these institutions will be considered in depth.

2. To teach the student to think of economic phenomena in terms of their long-run effects on all groups, not merely their short-run effects on those directly concerned.

OVERVIEW OF THE COURSE

The course will focus on five main current problem areas: 1) The validation of economic activity and fundamental economic institutions in the face of widespread criticisms. 2) Environmentalism and the outlook for energy supplies. 3) Economic “planning” and the reasons for the worldwide collapse of socialism. 4) The monopoly question and antitrust policy. 5) Prevailing ideas on the nature of productive activity and the effect of government intervention on the standard of living of the average wage earner.

Two leading themes of the course will be 1) The possibility of continuous economic progress based on the combination of economic freedom, private ownership of the means of production, division of labor, saving, and technological progress. 2) The ethical implication of the harmony of the rational self-interests of all men under these conditions.

BOOKS FOR THE COURSE

A. George Reisman, Capitalism: A Treatise on Economics

B. Ludwig von Mises, Human Action, Third Edition (paperback).

(In some years I used von Mises's Socialism instead of Human Action. The reading assignments in Socialism appear in brackets throughout this syllabus. Please note that the page references are those of the Jonathan Cape edition, which can be found in the Liberty Press Edition.)

C. Paul Samuelson and William Nordhaus, Micro-Economics (paperback), 15th Edition, (New York: McGraw Hill, 1995).

(I include Samuelson in my university courses in order to avoid the charge of being “one-sided.” Somehow professors who use only Samuelson or the equivalent, who have never even heard of von Mises, much less assign his writings, do not have to worry about being considered “one-sided.” They are automatically presumed to be fair-minded scholars, who present all viewpoints that those who know little or nothing about capitalism believe should be presented. Participants in this program who think that they need to learn more about leftwing arguments from their supporters should read the assignments in Samuelson and, to the extent necessary, the titles listed in the bibliography to Capitalism under the heading “The Enemies of Capitalism.”)

COURSE CONTENT AND READING ASSIGNMENTS

(Note: This course meets just once a week, for four academic hours. This explains why the midterm examination coincides with the seventh class session.)

Week 1

Introduction: The nature and value of economics. An overview of the subject's content and history. Principal applications. The philosophical foundations of economic activity. Economics and capitalism.

READINGS

Reisman: Introduction and Chapter 1

von Mises, Human Action: pp. 1-3, 7-10, 862-885. Also see glossary at the end of this syllabus.

Week 2

The role of wealth in human life. “Scarcity” and the limitless need for wealth. The law of diminishing marginal utility and its reconciliation with the limitless need for wealth.

READINGS

Reisman: Chapter 2

von Mises, Human Action: pp. 257-326

[von Mises, Socialism: 289–313, 395-403, 452-453]

Samuelson: Optional: Chapter 1

Week 3

Natural resources, the law of diminishing returns, and conservationism. The ecological critique of economic progress: a rebuttal.

READINGS

Reisman: Chapter 3

von Mises, Human Action: pp. 119-131, 654-663

[von Mises, Socialism: pp. 404–408]

Samuelson, pp. 96–97 (upper left); Optional: Chapter 19

Week 4

The division of labor as the central requirement of a high and rising output per capita; its advantages and alleged shortcomings. Dependence of the division of labor on the economic institutions of capitalism, especially the price system. Prices, economic planning, and economic coordination.

READINGS

Reisman: Chapter 4; Chapter 5, Part A; Chapter 8

von Mises, Human Action: pp. 143-176

Week 5

Demand and supply curves. The law of demand. Elasticity of demand.

The uniformity-of-profit principle and its applications to consumer sovereignty, economic progress, the cases of farm subsidies, rent and price controls, profit taxes, and racial discrimination.

READINGS

Reisman: Chapter 5, Part B; Chapter 6, Part A

Samuelson: Chapters 3–5 (to p. 86)

Week 6

Tendencies toward uniform prices over space and time; applications to the Arab oil embargo and commodity speculation. Tendency toward a uniformity of wage rates at any given level of ability. Equal pay for equal work. Permanent inequalities in wage rates. Prices and costs of production. Ultimate analysis of cost of production. Cost of production and supply and demand.

READINGS

Reisman: Chapter 6, Part B

Samuelson: Chapter 6, Part A; Chapter 7, Parts A and C

Week 7

Following Midterm: Pricing of goods and services in limited supply. Costs and economic coordination.

Week 8

The free market's efficiency in responding to economic change. Factor prices. Price controls, shortages, and economic chaos. Illustrations from the energy crisis and rent controls. From partial price controls to universal price controls.

READINGS

Reisman: Chapter 7

von Mises, Human Action: pp. 730-736, 758–769; [von Mises, Socialism: pp. 527–543]

Week 9

Universal price controls and de facto socialism. The chaos of socialism. Understanding the collapse of Soviet Russia and the communist bloc on the basis of price theory. The tyranny of socialism.

READINGS

Reisman: Chapter 8

von Mises, Human Action: pp. 689–710, 716–719, 732–736; Optional: pp. 710–715

[von Mises, Socialism: pp. 114–142, 196–220, 516–521]

Samuelson: Chapters 8–10; Chapter 18, Part B

Week 10

The influence of the division of labor on private ownership of the means of production. Implications for redistributionism, the institution of inheritance, taxation, and land rent. Economic freedom, territorial sovereignty, and peaceful international relations.

READINGS

Reisman: Chapter 9, Parts A and B

von Mises, Human Action: pp. 737-742, 804-832, 664-688; [von Mises, Socialism: pp. 37–42]

Week 11

Economic inequality and economic competition. Equality of opportunity. The law of comparative advantage and the pyramid-of-ability principle. Free international trade. Population growth and the freedom of immigration.

READINGS

Reisman: Chapter 9, Part C

von Mises, Human Action: pp. 743-757, 833-861; [von Mises, Socialism: pp. 314–358]

Optional: Samuelson: Chapter 22

Week 12

The monopoly question. The political versus the economic concept of monopoly. Capital requirements and entry “barriers.” The alleged tendency toward universal monopoly. The predatory-pricing doctrine. Marginal revenue and marginal cost. The pure and perfect competition, oligopoly, and monopolistic competition doctrines.

READINGS

Reisman: Chapter 10; [Optional: von Mises, Socialism: 361–392]

Weeks 13 & 14

The division of labor and the concept of productive activity. Exposition and critique of the Marxian exploitation theory. The productivity theory of wages. Labor unions and labor legislation. A reinterpretation of modern economic history. The productive functions of businessmen and capitalists, of retailing, wholesaling, and advertising.

READINGS

Reisman: Chapters 11 and 14

von Mises, Human Action: pp. 592-623, 628-634, 769-779

Optional: Samuelson, Chapter 13