Commanding Heights:The Battle of Ideas

Feedback Loop

• Before we get going, let's please go around the room and have everyone share:o One reaction to the movie

i.e.  I never realized how much economics impacts history

o One question that they have i.e.  I don't really understand that scene in Germany

with the lifting of price controls and goods coming to market, but I can tell it's awesome and very important.  Please explain it in more detail.

Definitions

Macro-EconomicsBranch of Economics that studies the behavior and decision-making of entire economies, using aggregated indicators such as unemployment, GDP and prices to understand how the whole economy functions.

Micro-EconomicsBranch of economics primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. 

DefinitionsInflationA rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money.

Inflation can have positive and negative effects on an economy. Negative effects of inflation include loss in stability in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. 

Positive effects include a mitigation of economic recessions,and debt relief by reducing the real level of debt. 

Keynes vs. Hayek

Keynes• Government should spend money during a depression. • Spending money reduces unemployment, which increases

tax revenues.  • It’s not great, but it is ok to accumulate government debt and

to have a small amount of inflation.  • The economy is like a high performance machine that can

be adjusted by skilled technocrats.  

Keynes vs. Hayek

Hayek• Too much government control over the economy is a bad

thing, because it leads to more government control.• Too much government control generally which leads to a

reduction in freedom.  • The economy is more like a natural force (think wind, water,

etc.) - we cannot tame it; when bad things like recessions happen we just have to ride them out.  

Discussion 

Think about today’s current events. Do you see the influence of Keynes? Of Hayek?

Definitions

CapitalismAn economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

SocialismAn economic and political system advocating public or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with an egalitarian method of compensation.

Definitions

Planned EconomyAn economic system in which the central government makes all decisions on the production and consumption of goods and services.

Market EconomyAn economic system in which production, distribution, pricing, and investment decisions are made by the private owners of the factors of production based upon their own interests rather than upon furthering some overarching macroeconomic plan.

Discussion

Do you have to have a free market to have a democracy?  

Do you have to have democracy to have a free market?  

How do capitalism and democracy compliment each other?  

Definitions

Wage and Price Controls (Incomes Policy)Government policies dictating the price for which goods and services can be sold.

Black Market (Underground or Shadow Economy)A market where all commerce is conducted without regard to taxation, law, or regulation of trade. It is generally smallest in countries with the greatest economic freedom, and vice versa.

Discussion

When Erhard abolished price controls on German goods, their economy began producing again.  

Why and how did this happen?

Definitions

StagflationPersistent high inflation combined with high unemployment and stagnant demand in a country's economy.

Gross Domestic ProductThe total value of goods produced and services provided in a country during one year.

Discussion

Think for a minute about the coal miners striking in England; they must have believed strongly in their opinions to go through

a year-long strike.  

Does anyone in class sympathize with them?

Is it a good idea for a Government to put money into an industry, assuming these actions create jobs but also make the

industry inefficient?  

If so, why?  If not, is it ever a good idea?  

Did the British Government have any responsibility to the striking miners?

Discussion

What do you think about Thatcher and Reagan’s leadership styles? Did they have a vision? Was it shared?

Discussion

Keynes said, “If expenditure on armaments really does cure unemployment, then a grand experiment has begun. Good may

come out of evil.” 

What do you think about this statement?