Commanding heights
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Commanding Heights. Episode 1. Important Ideas from Commanding Heights. What are the guiding principles that Keynes and Hayek describe in their theories? Trace the changes in economic theory from 1900-1980.

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Important ideas from commanding heights
Important Ideas from Commanding Heights

  • What are the guiding principles that Keynes and Hayek describe in their theories?

  • Trace the changes in economic theory from 1900-1980.

  • What are the important questions we ask in our modern economies? (It is no longer one or the other…)

  • What principles guided the economic theories of the post Reagan/Bush years in the US? Clinton, Bush II, Obama


  • Russian revolution

  • Against the global economy

  • End exploitation of man by man

  • Promise of a more just society

  • Markets need to be free from government meddling. Markets work and governments won’t. ~von Mises

Keynes vs hayek
Keynes vs. Hayek

  • Keynes – market won’t work, government must step in –

    • Trade and expanding technology flow freely in early 20th century until WWI

  • Hayek – the market will prevail if we are more patient

    • Disillusioned by WWI and vows to work for a better world

Keynes and the west
Keynes and the west

  • Worked with west during WWI

  • Against the huge reparations imposed on Germany

  • The Economic Consequences of the Peace

  • Predicted a final war that would destroy civilization if we kept Germany/Austria impoverished

Lenin and russia
Lenin and Russia

  • Allows small farmer and businesses to function to improve local conditions but insists that the commanding heights will remain under the control of governments.

  • 30% of world population follows Marxist – Leninism

  • Stalin manages the economy and forges ahead. Capitalism appears doomed.

Germany and austria
Germany and Austria

  • Printing more money results in hyper-inflation

  • The Nazi's are successful due to the support of disenfranchised middle class.

  • Hayek hates inflation and makes fighting it the cornerstone of his theory

Us in the 1920 s and 1930 s
US in the 1920’s and 1930’s

  • Boom time

  • Spending money on goods

  • Buying stock

  • Radio is the internet of the 1920’s

  • Stock market crash brings depression of the 1930’s

  • The government does nothing to intervene

Europe in the 1930 s
Europe in the 1930’s

  • Same conditions as the US in England

  • Italy and Germany turn to fascism

  • Keynes writes a book explaining the depression and its solution. Macroeconomics.

  • Governments can manage their economies.

  • Spend against the wind.

Roosevelt in the 1930 s
Roosevelt in the 1930’s

  • Government programs developed to spur economy and create jobs

  • Regulation of capitalism

  • New Deal creates structure and eliminates boom/bust cycles that deter economic growth

  • Harvard and Galbraith

  • Live with a little inflation to keep unemployment low

  • Accumulation of debt is not important

1940 s

  • Depression disappears due to war

  • “Good may come out of evil”

  • Hayek writes “The Road to Serfdom”

Wwii ends

  • Britain: Build a new society with no unemployment, fascism, or depression

  • Labor party wants to plan the peace

  • Churchill opposes planning and controls

  • Labor party wins and Britain goes socialist

  • Private owners must sell their businesses

  • Created nationalized industries: coal, rail, steel

  • Rebuilds Britain: welfare state, health care, employment

Wwii ends russia
WWII Ends: Russia

  • Stalin and socialism

  • Industrial and military powerhouse

  • 1/3 of world is socialist

  • Cold war begins

  • Hayek sees socialist ideals as a threat to the global economy and freedom

Berlin 1947
Berlin 1947

  • Germany is ruined and divided

  • Economy is brought to a halt through wage and price controls

  • Black market forms using cigarettes, liquor

  • New German currency formed

  • Ehrhart: eliminated price controls and the markets started working again

  • Germany combines free markets with welfare state, but NOT planned economy


  • Economic Ideal: Gandhi- simple self-sufficient villages

  • Nehru: State led model of industrial growth

  • India becomes the model for newly independent nations

  • Socialism is the road out of poverty and into modernization

1950s us
1950s - US

  • University of Chicago is the center of economic intellectual thinking

  • The market is comprised of forces that can neither be controlled or ignored. Instead they must be harnessed.

  • Keynes remains highly influential: the economy is not a force, but a machine.

1970s us
1970s - US

  • US economy fails: stagflation – inflation and unemployment

  • Nixon claims to be Keynesian

  • Nixon imposes wage and price controls

  • The economy spirals out of control

  • Deregulation of airlines leads to competitive pricing and deregulation of the entire US economy

1970s britain
1970s - Britain

  • Also experiences unemployment and inflation

  • Also uses wage and price controls to combat stagflation

  • Coal miners strike and oil crisis

  • Conservatives voted out

  • Keith Joseph jumps ship and begins promoting the free market and capitalism

  • Thatcher is a big fan

  • Hayek wins the Nobel Prize

1980s and britain
1980s and Britain

  • Thatcher is a proponent of Hayek and the free market

  • Thatcher wins in the Falklands

  • Socialist miners fight to keep government subsidies and go on strike

  • Strike collapses, 70000 jobs lost

  • Britain sells state-owned industries


  • No longer Socialism vs. Capitalism

  • No longer Market vs. Government

  • How to harness market forces

  • What would we demand of governments in the face of difficulties, war?

  • Economics of the 90s and the new millennium.

Mr bahlke segment key points
Mr. Bahlke segment: Key Points

  • History matters, and so do ideas.

    • Does anybody remember the stimulus?

  • “It’s the economy, stupid.”

    • Arguably, all of history is economic history. Which might just mean that all of everything is economic history…

  • What is the developing world, and why are we developing it?

    • Jeff Sachs: 200 years ago, we were all subsistence farmers

The parable of the ipad
The Parable of the iPad

  • Vote for me for class president, I’ll make iPads only $1

    • Mia and Jake have a bunch of iPads, everyone else wants them. What’s going to happen?

  • Tie back to Germany, pre and post price controls


  • Inflation - a general increase in prices and fall in the purchasing value of money

    • When/why/for whom is inflation good?

    • When/why/for whom is inflation bad?

Coal miners and the human side of free markets
Coal Miners and the Human Side of Free Markets

  • Think about the coal miners in Great Britain as the movie presents them.

  • Think about the coal miners in Great Britain as if they were your parents. (Billy Elliot, anyone?)

  • Think of modern equivalents of coal miners: US labor movement, etc.

Human side of free markets c td
Human Side of Free Markets c’td

  • When do markets work and governments not work?

  • When do governments work and markets not work?

Democracy and capitalism
Democracy and Capitalism

  • Three students were having a discussion about democracy, one from China, one from America, and one from Denmark…

  • What is a “free” market?

  • Discussion: If you have a democracy, will you automatically have capitalism? If you have capitalism, are you necessarily in a democracy?