Mandeville’s Influence

Bernard Mandeville was a Dutch writer and economist from the 18th century. His most famous work is the Grumbling Hive (1705) and his defense of that poem The Fable of the Bees (1714), which included the former work in it. Both of these poems are based on a bee hive that represents human society. It explains how Mandeville thinks society, particularly economics, should really be. His two most important ideas from these poems are namely that people are driven by selfishness and that there is a certain spontaneous order that comes to society. However, Mandeville’s poems were written terribly and they aren’t great examples of writing. So why did Mandeville come down in history as important?

The two main ideas from Mandeville’s works are spontaneous order and selfishness. Looking at the work of Adam Smith, a Scottish economist and philosopher, The Wealth of Nations, we find these two ideas as the base of Smith’s philosophy. Continue reading

“I’m In Debt!”

“Why shouldn’t I borrow to buy something that depreciates?”

When you get a loan, you borrow ‘x’ amount of dollars. You must then pay back ‘y’ dollars in interest, as well. So, you’ll be paying back more money to the lender than you originally borrowed.

Now you get a loan and buy a nice new couch. As you use it, it gets worn, discolored, etc…. Now, ten years later, your couch is no longer as valuable as it was ten years ago—it depreciated. So you’re paying off a loan, with interest, and your item has depreciated in value and you can no longer sell it to get some money back.

On the other hand, if you buy something like a house on a loan, it is worth it. Houses typically don’t depreciate in value, depending on the economy and market. You could buy a house (with a loan) for $200,000, fix it up and make it worth more than before, and then re-sell it for a profit. Now, you have made money on your “investment” and your loan was not a waste. You made a profit, using the loan, instead of having to pay more.

Typically, borrowing to buy an item that can depreciate in value is not a good idea. Sometimes, though, you may not have a choice. Sometimes, that item is so important to you that you don’t care about having to pay off the loan. Spending and managing your finances is all about choices.

War and the Economy

A common presupposition about the relationship between economy and war is that war stimulates the economy. The economic situation in America during World War II shows us that this is not the case.

During WWII, 40% of the labor force was employed by the army, producing weapons, machinery, etc…. The remaining 60% was left to make up for the lost production of consumer goods* by the 40%, on top of what it already had to produce. If it didn’t do this the standard of living would go down. This is not a healthy, booming economy.

An argument that is used to say the economy improved during WWII is that the rates of unemployment fell. The reason for this is that the unemployed were now employed by the army or drafted into the army. Therefore, there were no more unemployed people.

War does not make the economy better. In reality it reduces jobs, productivity and therefore the standard of living of a country.

 

*e.g. milk, socks, toothbrushes, TV’s, cars. Not producer goods, which are machinery used to produce cars, factories, etc….