A review of an article concerning Trust in the U.S.

Hi, Bechir and James, this weekend I have spent quite a lot of time reading a case study of anti-trust that is requested by my master class, of course in English. And I think it is quite worth reading even though its subject is predatory price cutting suspicion commited by Rockefeller's Standard Oil company since the testemony provided had proven from other perspective that how Rockefeller had well exhibited his talent in business. And I will send you the original essay if you are interested.

Let me share with you my thinking piece that took me some six hours(Saturday morning from 10:20 to 12:00, 14:15 to 18:00 and Sunday from 11:00 to 12:30 and 15:30 to now!)

Thinking Piece

After a long but not tough reading of an essay concerning law and economics, I have come across many ideas that never appeared before since the study of industrial orgnization. Not only because an economist stood out and defended for Rockefeller, but also for his analysis indicated, at least to me, many points worth pondering.

I was, at first sight, quite surprised to find that the author seemed to be an attorney that was employed by Rockefeller in a drastic debate before the jury. However, after learning that he, Mr. John S. McGee was from University of Chicago, I felt it quite natural since the memebers from Chicago school is always singing high praise for the mechanism of the market that can cure any “disease” occurring comtemporily. Therefore, when he scrathed pieces of evidence to refute the accuse of predatory price cutting, I fully understand his effort.

As this is a thinking piece which allows a free tour of mind instead of a rigorous essay with a strictly logical deduction and conclusion, I will in the following share my opinions oriented by some Chinese traditional ideas.

孙子兵法曰：上兵伐谋，中兵伐交，下兵伐城

SunTsu said : wise commander emphasises the ruse, mediocre commander resorts to diplomacy and the last choice is using the physical fighting.

First, concerning the strategy itself, predatory price cutting is not preferrable according to SunTzu, the most influential Chinese martial genius 2500 years ago. One of his famous remarks about war is that never should a marshal start a battle that kills 1000 enemies but loses 800 his own soldiers, unless it is extreme necessary. Predatory price cutting is exactly this kind of strategy if we examine the definition and conditions that it is applied in the first hypotheses part of article. In the case of Standard Oil, choice by the executives was wise, both in the competition against refiners and in dealing with the jobbers and retailers, Standard Oil tried hard not to use this weapon. In fact, except few cases found in the textbook(many of wich are not truly verified), in the daily life, predatory is like some kind of nuclear threat. Poessessing it is a matter whereas appliying it is another.

As a suggestion, I proposed that either we change a little bit the definition of predatory price cutting so that it can be applied to a wider scope or we add some tendancy analysis of this behavior which certainly. Since rpedatory price cutting, born as an anti-trust phenominon, has too much constraints. Nobody wise enough will take it at ease. But that is not to say that predatory has nothing to do with the case.

Concretely, the doubt that I hold towards the paper is that the author devotes a lot in arguing that never had Standard Oil used or tried to use predatory price cutting. Nevertheless, he failed to demonstrate whether this threat that hung over the rivals of Standard Oil had ever caused any effect to the actions taken by both sides, even though neither had it clarified. For example, the Standard Oil did purchase many of his rivals without resorting to predatory price cutting. But the result of potential price cutting that lead probably a predation compared to a irresistable price to sell has a priori preset the end.

To study this kind of case is, to me, quite different in the sense of law and that of economics. Anything that lack direct proof or testimony is not persuasive in before the judge. While if we change the point of view to the economics, we can employ any reasoning indicated by SunTzu to guess the ruse of the player so as to made our study of anti-trust powerful.

孙子曰：知己知彼，百战不殆。

SunTzu said : when you know clearly of your enemy and yourself, you can never lose a war.

The Standard Oil, despite its success in competition against the refiners, didn’t rush to monopolization in the market area of its product. Thanks to a calm analysis, the company left the market fully competed. This can be verified by the author of the article: “In retailing, numbers were often very large, and entry was cheap and quick. Standard Oil never had, or apparently sought, a monopoly of retailing. It would have been pointless to try, and probably impossible to achieve…… The skills and resources devoted to refined oil peddling were neither expensive, scarce, nor specific. A wagon, horse, driver, and some cans or a tank made a peddler.”

Thus, when Standard Oil was facing a market that could fulfill its dream of vertical integration and a possible profit, it was not fascinated by the realm of its own neither let it be. After a careful research about the characteristics and specifics, it sent out the guys to guarantee the market ”efficient and competitive”.

Return to the case of predatory price cutting. Many small refiners had succeeded in surviving just because they got the confidence by knowing well their predator could not possibly last for ever the predatory pricing since its market share caused it a much greater loss, and they then could fight back by shutting down temporarily without selling out their facilities. It is also due to its awareness of the reactions of its rivals that Standard Oil was more than caution in utilizing predatory pricing.

To enlarge this application, we presume that one firm is determined to pick up predatory pricing policy. It is highly recommended that besides knowing its own capacity in coping with the rivals in a long term war, the firm should have a fairly good estimation of its rivals’ ability of gathering money from any possible way to sustain alive, of what reactions its rivals will have when they fail to continue, of how high the barriers of re-enter as well as of possibility of monopolizing, etc. Nowadays, it is the competition of ability to borrow from financial intermediary that decides the result of predatory pricing.

三十六计： 围魏救赵

Thirty-Six Stratagems：relieving the state of Zhao by besieging the state of Wei。

This story happened during the same era, if not later, as Sun Tzu. Standard Oil had perfectly utilized this stratagem in its game. As we can easily find in the record collected by Mr. McGee that instead of predatory price cutting, Standard Oil forced its rivals by cutting the source of oil to the refiners, this kind of indirect antagonism is best explained by the sub title whose common examples, in the history, are destroying the supply for soldiers and hay for horses to win the war.

In Chinese traditional stratagem, an indirect way which can lead to the same result is much more appreciated than the ferocious attack. It is also observed in the enterprise’s strategy as professor Chevalier has pointed out that in the control of a firm, the more camouflaged you are, the more profit you will get.

In the context of Standard Oil, the indirect way it adopted was seizing the railway transport which, even though avoided its commitment of predatory pricing, reached the same target of wiping its rivals out without the price war or sometimes expensive purchase.

A conclusion that has not concluded:

In the competition between energy enterprises, a suitable and flexible strategy is absolutely necessary on noticing that it is not a game of several years or even decades, but a incessant one. Standard Oil case is worth reading again and again not because whether it had exercised a predatory price cutting, but its speculation facing this choice (thanks to Mr. McGee’s data and analysis) and its action to accomplish the goal if the predation proposal is rejected even though some of them are illegal according to the corresponding law.

The point is that with the evolution of the constraints against the monopoly, the enterprises that are pursuing a greater scale and scope should really be careful in the strategy making. Hopefully, they can throw a glimpse onto the famous Chinese traditional treasures and transfer them in the practical business operation.

IBM's history and its influencial leaders

Hi, Bechir, sorry to be absent on the blog this week since I have been in the busy time, and this period will last till the end of februry. I spent five hours totally from Fridy to Sunday morning to finish this one, since I have alwasy been studying the economists, I decided to have a little change this time.

History of IBM

When we, the newborn of 70’s or 80’s, are talking about Microsoft today, our father’s generation were doing almost the same thing about IBM, the blue giant whose development used to be cited as a history of certain technology. The most frequent saying about IBM is almost a live fossil of IT especially computer industry.

Let’s first have a global view of this Big Blue. Its full name is International Business Machines Corporation; headquartered in Armonk, N.Y., U.S.A. IBM covers its activities in the computer hardware, software, infrastructure services, hosting services, and consulting services in areas ranging from mainframe computers to nanotechnology. As late as 2005, it has 330,000 employees all over the world and achieved a $91 billion. Naturally, IBM is by far the largest information technology company in the world, and holds more patents than any other technology company. As far as its globalization is concerned, IBM has engineers and consultants in as many as 170 countries and regions. It is even more amazing to take a glimpse of the achievements recorded by its employees: five Nobel Prizes, four Turing Awards, five National Medals of Technology, and five National Medals of Science.

Now, if we are looking back to its brilliant history which dating back to last two centuries, four parts are to be studied here, based on several influential persons even though not all of them are CEO. The first part is its origin from 1888 to 1911. Second, from 1911 to 1956, the period of Thomas J. Watson, then from 1956 to 1971 his son Thomas J. Watson Jr. Afterwards a period symbolized by Don Estridge, IBM entered into its PC world. Following is the tenure of Louis V. Gerstner, Jr. as an end.

Although IBM was incorporated in the state of New York on June 15, 1911 as the Computing-Tabulating-Recording Company (C-T-R), its origins can be traced back to developments at the close of the 19th century. For example, the first dial recorder was invented by Dr. Alexander Dey in 1888, and Dey's business became one of the building blocks of C-T-R. Similarly, the Bundy Manufacturing Company was incorporated in 1889 as the first time recording company in the world, and it, too, later became a key component of C-T-R. In 1901, George W. Fairchilde established Inter-national Time Recording Company, as the selling agency of the Bundy Manufacturing Company, Willard and Frick Manufacturing Company, and Standard Time Stamp Company, which also manufactures a card recorder. International Time Recording Company acquires Dey Time Register Company (formerly Dey Patents Co., organized in 1883), which makes dial, card and job time recorders. It was not until 1911 that Charles R. Flint and others decided to merge three companies: International Time Recording Company, Computing Scale Company, and the Tabulating Machine Company to form the Computing-Tabulating-Recording Company (C-T-R). The new company is based in New York City and has 1,300 employees. George Fairchild becomes the first chairman of the board of directors. This name was changed in the year of 1924 when it was Thomas J. Watson, Sr. took control of it.

In 1914, Thomas J. Watson, Sr. joined C-R-T and became the manager who was recognized, if not sharing with his son, the father of IBM. Thomas J. Watson, born in 1874, was shy because of his asthmas and took a course in commerce then a peddler for organs and pianos. After several years' struggling against destination, he finally made himself a general manager in C-T-R where he exerted his talent as a successful business man. He had contributed to the company not only the name that make people remember but also, at that time a trend to abandon the traditional accounting way and try the product of C-T-R. He was at the same time, a creator of a spirit for IBM, the famous idea of "THINK". When he took over IBM in 1914, the scale of the company is no bigger than 400 employees. Through his hard wok, however, IBM had become the object of a suit by the federal for its possessing some 90% of the tabulating machines market.

Don’t forget that even during the great depression that almost destroyed many industries in the US, the IBM remained alive even grew under the lead of Watson, who was the first to provide the group life insurance, survivor benefits and paid vacation.

What is interesting is his involvement in both sides of Second World War. Since his machines helped both the troops of US, USSR and UK and their NAZI enemy, Watson received even a medal from Germany for his contribution. Of course, he returned it and devoted much effort in helping the US army.

If we deem the Watson Sr.'s period as a dawn time for IBM, the years following dominated by Watson Jr., or from 1956 to 1971 to be exact, the morning time. He was born by coincident the same year as his father entered IBM. As often called, Tom Jr. graduated from University Brown and then entered IBM from the very beginning. During the war time, he was a pilot for a general from whom he learnt a lot about how to manage and act as a leader. Returned from the war, Tom Jr. restarted in IBM and soon, with his accumulation from the general, became in 1952 the president of IBM. In fact, from that time, it was him that propelled the campaign of computer as a redirection of IBM despite the opposition of most members in the board including his father. Lucky enough for IBM, Tom Jr. insisted and went on. In the year of 1956, the federal of US put more pressure on IBM’s monopoly behavior on the card market which led to the resign of Watson Sr. and thus left Tom Jr. sound reason and vast space to develop his dreaming computer industry.

Let us examine the achievements of Tom Jr.: during the first five years since his taking over, the stock of IBM had increased by four times! What’s more, the famous "IBM's $5 Billion Gamble" had proofed all for Tom Jr. as a risk taker as well as a strategic leader. The story is like that: “In the early 1960s he oversaw the System/360 project, which produced an entire line of computers that ran the same software and used the same peripherals. Since the 360 line was incompatible with IBM's previous products, it represented an enormous risk for the company. Despite delays in shipment, the products were well-received following their launch in 1964 and what Fortune Magazine called "IBM's $5 Billion Gamble" paid off.”_{1from WiKipedia}

Besides his resolution in the redirection of IBM’s business, Tom had also established a well integrated system of R&D. Compared with his father who preferred sound product with substantial effort on the sales-system, Tom foresaw the importance and advantage of research and development structure that is essential to modern high technology industry. In addition, Tom Jr. had invited Von Neumann as the designer who finally turned a new page of computer history. .

Even though scarcely mentioned, Tom’s greatest contribution was in term of company’s structure of organization. “In 1956, in a move that later became a bi-annual event, he reorganized IBM on divisional lines, to give a decentralized organization, with 5 major divisions (in the US). The new structure comprised:

1. Field Engineering Division ‑ the most important grouping selling to (and servicing) commercial customers.
2. Federal Systems Division ‑ selling to (and servicing) the special requirements of the US government (including, later, major involvement as sub‑contractors to the NASA space program).
3. Systems Manufacturing Division.
4. Components Manufacturing Division.
5. Research Division.

In the wings, almost as also‑rans, were Electric Typewriter, IBM World Trade, Service Bureau Corporation and Supplies Division; as well as the Time Division (which was sold off two years later in 1958).”_{Cited from WiKipedia}

Even after Tom Jr.’s great reform, IBM and its product remained still in the office of the government or doing calculating for the weather or defense. Individuals were too far from that magic machine. From this point of view, we should give our respect to Philip Donald Estridge. Although Estridge was neither the president nor the high level manager of IBM, he was such a celebrity that Bill Gates took him as the only close partner in IBM.

Estridge started his career in IBM sharply after graduation and his loyalty was demonstrated time and time again in front of the allure of other companies even in his troublesome time in IBM. His working style was perhaps the most accused aspect: in a drastic competition against Macintosh, Estridge bought himself a Macintosh and studied it day and night, and even discussed the defaults and advantage of it. Moreover, he showed a great disrespect to the cumbersome bureaucracy in IBM by not attending the disgusting meetings. But his chance hit him in the year of 1980 when the committee of IBM decided finally to set up a secret group to explore the PC domain that was occupied by the other rivals. Estridge was named head of the group of 13 persons.

The way Estridge organized his work was that he bought the components of the PC from the market instead of the insiders, e.g. microprocessor from Intel etc. He also implanted inside the IBM PC the Dos operating system by co-operating with Bill Gates. Whereas the most controversial act Estridge took was to give the agents the total right of sales. Since the selling system was traditionally a pride of IBM’s success, he was contested by many people.

In August 12, 1981, the IBM PC was born and a small news conference was held. However, it was several months later that the effect of IBM’s entrance became evident. To illustrate its success, a story was well spread. In the north of New York beside the IBM headquarter, a shop that sold IBM PC became the focus of all the habitants as well as the IBM staff. It was so crowded that real customers always failed to enter the shop! One day, a tramp came into the shop and shot himself through his mouth! Fortunately he was not dead. When asked why committed a suicide here, he said that never in the Big Apple could he find another crowded place to witness his suicide.

In one year, the PC industry returned to IBM some 1 billion dollars which exceeded enormously the anticipation of the board. Afterwards, Estridge had succeeded in developing the XTPC and AT, even though the latter was not that perfect. With his brilliant leadership, the PC department had itself ranked 74^th biggest company in the US!

Because of the bureaucratic reasons and his “incorporative” working way, Estridge was “promoted” to another position with little real power. He was killed in an air accident when still in his forties. At the same time, the flourishing epoch was put a period by his leave.

Another legendary person in IBM is Louis V. Gerstner, Jr. who was believed by many to be the saver of IBM from getting out of business. Gerstner was first a student of engineer but shifted his interest to MBA. Before entered IBM, Gerstner worked in McKinsey & Co., American Express and Nabisco none of which had relation with IT.

With his experiences in the precedent firms, Gerstner put forward a series of actions like cost-reductions and emphasis on the IT service. He was specially focusing on the integration of business solution providing since he tasted it well in his tenures before IBM. Gerstner also stopped a plan of disaggregating the company into the “Baby Blues” that each had a mature system of production and sales.

As a successful CEO, Gerstner was as well a good best-seller writer. His biography “Who Says Elephants Can't Dance?” was viewed as a good reference, if not a bible, for all degrees of managers different from Jack’s autobiography which was for the higher managers. In the book, Gerstner told what he had done as reform in his 9 years’ presidency.

Now, it is Palmisano, Samuel J. who is driving this gigantic ship in the dangerous but promising ocean of IT. It is hard to tell the future of IBM after this retrospection since it has experienced the extreme glory and fatal crises, and it remains competitive and influential especially after its cooperation with Lenovo and its Chinese background that permit us to expect more legend of industry.

Bibligraphy:

http://en.wikipedia.org/wiki/History_of_IBM#1960s.E2.80.931980s:_Success

http://www.echeat.com/essay.php?t=26664
http://www-03.ibm.com/ibm/history/history/decade_1880.html

what France needs ...

Hi everybody,
Before I begin I want to thank Haobo for the work he did about these big characters, the fathers of economics.
Speaking of my self, I'm not only interested in the history of Economics but also it's impact in our lives and why it's so important. I want to talk about a very nice survey I read in the revue (The economist). This survey was called What France needs :)
It was really interesting and really relevant. It was devided in different parts and I'll try to summarize some of them in this article.
The survey begins with a general introduction about the ecomonic situation in France nowadays, it's compared to the situation in Britain in the late 70's. In fact, there's a lot of similarities, the strikes (winter of discontent in the winter 78-79 in Britain compared to the banlieues and the CPE problems) the votes going to the extreme and the people tendency to be worried about the redistribution of wealth not it's creation ... The introduction continues with the three main reasons to the restelessness of the French. First, the economy lost grounds. Over the past 25 years the french has dropped from the 7th place to the 17th place in terms of GDP per head, even in terms of healthcare it dropped from the 8th place in 1990 to the 16th. Second, the economy is heavily planned in France, it's a big tradition in France to plan everything thanks to the elites from l'Ecole polytechnique. It was istablished by Jean Baptiste Colbert Louis XIV's finance minister. It had it's good points but showed it's limits, too many bureaucrats supported by too many taxes impose too many rules ... In such system people expect solutions to come from the top, whereas in the US fo example a lot of big campanies were made by students, some of them didn't even finish university, such a thing would never happen in France. The third point is related to politics, the politicians have failed to explain to the citizens why the country can't go on as before. A very clear example to that is the CPE, a contract who was made for the youth and politicians didn't explain why it was good for them, they just wanted to impose it. The introduction finishes with a note of optimism for the future, it says that the situation si much better than the Britain's and so it should be mastered.
I just figured that the introduction is taking a lot place, so I'm going to summerize shortly the different parts of the survey. The first article "Insiders and outsiders" is describing the situation in France and all the duality that it has. First the big difference between the CAC40 campanies which are really competitive and the rest which are not that good. Then the duality between the Grandes Ecoles and the regular universities why the competition is good only for the elite, this really ellitistic system reached it's limit too, if the Grandes Ecoles are doing so well why the universities don't copy them. The article shows then a comparaison between two universities in Toulouse, one competitive with good results, well known in the world and who took a lot from the Grandes ecoles system and one other which is practicly inexistent. Then the survey quotes the chairman of BNP paribas a very well known bank in France, “For the past 25 years, every time a new problem has emerged, our country has responded by increasing spending.”
And then it gives the figures, public dept has grown to 1.1 trillion or 66% of the GDP five times it's level in 1980. The national audit office now says that the total national insurance deficit is heading for over 37 billions by 2009, the national depts will reach 100% of the GDP in 2014 and 200% by 2032. After these alarming numbers, the articles criticies the french integration system of it's minorities (the minority report), the suburbs where all the lower class socity is concentrated was the scene of a lot of fights last year, with what was called "the riots". The minorities are not represented in politics or in the television and that's one of the reasons of the discontent.
Finally the survey finishes saying that France can change things in the next year elections, both favorites Ségolène Royal and Nicolas Sarkozy want to change things, the problem is if they have the leadership and a Thatcher iron hand. Speaking of irony Margaret Thatcher was very impressed by the Général De Gaulle and now France has to find a Margaret Thatcher.

Joan Robinson

If there should be a pity in the Nobel Prize in the domain of economics, it was the lack of a woman. However, in the heart of most economist, Joan Robinson (1903-1983) was, perhaps the most deserving candidate to fill this blank. Her story is attracting not only because her achievement as a women economist but also because her relationship with China.

Joan was born in England and received all her education there. As most successful economists as mentioned in my blog, she was also a Cambridger. After marriage with another economist Austin Robinson, she went to India for 3 years. Returned to Cambridge, she started her academic career as a lecturer and then a professor even though she was in her sixty.

Madam Robinson's contribution is great as well as versatile. Scarcely can we find among those economists, such a omnipotent one. In 1933, she published her article of "Imperfect competition" the same year as Chamberlin's "Monopolistic competition". These two were worshipped even today as a fundamental branch of market structure's study. She was also a defender of Keynes' theory.

Besides, Joan was mostly remarked for her serious study, from the point of view as an economist, of Karl Marx, the father of Communist. Joan was deeply convinced by Marx' description of such infrastructure of society that capital is steadily distributed and seized. It was probably due to her bizarre thinking that distinguished her from other western economists and thus prohibited her from you-know-what prize.

Joan was a China fan, too. She had visited China several times and quite beyond rationality, she supported the Cultural Revolution initialized by Chairman Mao. Madame Robinson believed that the social system in the era of Cultural Revolution in China was a stable and reasonable prototype that worth learning by the other countries. Unfortunately, the Cultural Revolution was ended in a aggravated poverty.

Nevertheless, Joan Robinson left us many legacies including her magnum opus "The Accumulation of Capital" which, after 50 years, remains one of the most recommended textbook concerning finance, money and credit.

Let's finish by quoting a paragraph of her words on the purpose of economics study: “the purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."

Joseph Alois Schumpeter

There are certain great men remembered for something beyond the scope of their research, and Joseph Alois Schumpeter (1883-1950) is one of them. His life is rather a legendary than a narrative story.

Joseph Alois Schumpeter, an Austrian, was born in a place belonging no longer to Austria today. He showed a good talent in his school time and began smoothly his career by studying law at University of Vienna under the great Austrian capital theorist Eugen von Böhm-Bawerk. After PhD, he finally stepped into the domain where he later cultivated his own territory. He unfortunately experienced the collapse of the bank he led during the years after World War I. Then he retook his academic role in the University of Bonn until the arrival of shadow of Nazi. It was Harvard that accepted him where Schumpeter stayed until his death. In Harvard, he played a lively story of "Dead Poet Society". Joseph was so popular among the students and so hard among the colleagues that made his prestige and achievements in economics unnoticed. I almost forgot to tell that he has even been for a while the minister of Treasury of Austria even though it was not a successful try.

A well spread story of Schumpeter is that his student once had been refused by the librarian to borrow books freely and the student had turned to him. Schumpeter proposed then a duel against the librarian and won thanks to his training when he was young. Since after, his students could make themselves at home in the library.

However, Schumpeter was not so easy in his economist life since he was the most enemy, in the sense of theory discussion, of Keynesian economists. He thought low of Keynes' ideas that the government should intervene as the depression appeared. Schumpeter insisted The Theory of Economic Development that economy would adjust itself and without breaking down the old-fashioned, people could thus not enjoy a crystal new era! Many of his thinking was not recognized until the tide of IT in the 90's last century, especially by the entrepreneurs of silicon-valley.

By reviewing his most famous pieces, we could imagine in the turn of 19 and 20 century, a vigorous and learned young man flashed between the celebrity cafe salons and the classic music theaters, pursuing beautiful ladies. We should not affirm that it was his character inherent or the cultural influence of Vienna.
---"History of Economic Analysis"
---"The Theory of Economic Development"
---"Capitalism, Socialism and Democracy"
……

The author of those books was instead a dreamer of being the greatest rider of Austria, the greatest lover of Austria together with the greatest economist in the world.

Milton Friedman

Precious as a sunny day in the fall in Paris, today we shall focus on somebody who is still alive while influential to the economic world. Even though deserving a reputation no less than Keynes of his time, he rarely received it for complex reasons. However, his theory finally persists to the day he was awarded the Noble prize for his tremendous achievements.

Milton was born to a Jewish family originated from Ukraine. He grew up in New Jersey and educated in Rutgers University then Chicago University for master degree where he was deeply affected by those economists disagreeing with the popular ideas. After graduation, he worked once for New Deal to survive since no academic job had been found then. During the World War II, he served as a spokesman for the government as well as advisor to high Treasury officials. Young as he was, he advocated without reserve the theory of Keynes and boosted it with an appreciated effort. Later, he shifted his research in the domain of statistical issues. Receiving a PhD in Columbia University in 1946, he returned to Chicago University to his professor role. A cradle of Noble prize winners was thus established. In his years of retirement, he was gradually acknowledged by the public together with the economists to be one of the greatest economists in our days.


His scholar views are commonly opposite to those of Keynes which shed his radiation until a quite score of years later. His theory of money supply contributes a lot in explaining the phenomena of the economic life in the U.S... Milton is also a defender of quantity theory of money. In addition, he insists that the freedom of economics is fairly crucial to the healthy development of economy. While an intervention of government, as followed by the guide of Keynesian theory, turns out to be detrimental in a long run.

Mr. Friedman has a good name which predefines his orientation in the debates: his most famous works is "Freedom to choose" and he, indeed, succeeded in being a freed man! By the way, his son, perhaps under his influence became an economist too.

David Ricardo

When we are talking about the classic economics, especially political economics, the only one that we can never avoid is David Ricardo. Even though many of his ideas suit no longer today, much more are still proved to be fundamental and evoking.

From his family name, we can deduce more or less that he was not a native Anglo-Saxon. In fact, he was originated from Portugal. He was brought up in a huge family since 17 children were really a astonishing number. He received his education in the school in Holland and then joined his father or rather employed by his father in London Stock Exchange (which is deemed to be illegal today since David was only fourteen years old!!!). These experiences rendered him a great deal in his future achievement. When he was 21, he left his family for marriage and religious reason. Thanks to his social circle, he soon got a new business of his own which made him become wealthy. Afterwards, Mr. Ricardo started his hermit life while he thought had earned enough within his desire.

His interest in economics was triggered by Adam Smith's book "The Wealth of Nation" which led him into the research of this subject. His most acknowledged work is "Principles of Political Economy and Taxation" that contains two main sparkling ideas: a statement of labor theory of value and comparative advantage. The latter provides the basic theory support of current world's international trade. In his articulation of wage theory, he proclaimed the natural price is a trustable reference to the cost of production. Let's read a brief abstract from his words:

"Notwithstanding the tendency of wages to conform to their natural rate, their market rate may, in an improving society, for an indefinite period, be constantly above it; for no sooner may the impulse, which an increased capital gives to a new demand for labour, be obeyed, than another increase of capital may produce the same effect; and thus, if the increase of capital be gradual and constant, the demand for labour may give a continued stimulus to an increase of people...

"It has been calculated, that under favourable circumstances population may be doubled in twenty-five years; but under the same favourable circumstances, the whole capital of a country might possibly be doubled in a shorter period. In that case, wages during the whole period would have a tendency to rise, because the demand for labour would increase still faster than the supply."

(On the Principles of Political Economy, Chapter 5, On Wages, provided by Wikipedia).

Alfred Marshall

After talking about the student, our focus is shift to his supervisor: Alfred Marshall. As once said by Sir Newton that his achievement was mostly due to his standing on the shoulder of the formers, to Keynes, Alfred is, to some extent, the shoulder provider.

Mr. Marshall was born in the suburb of London. Instead of burning buses to have fun like the guys in Paris, he studied with an appreciated assiduity, especially in math which prepared him for his later challenges. A series of steady pace lead him finally and reasonably to Cambridge (I wonder how the guys in Britain can enter Cambridge or Oxford so easy???)

Different from Keynes (even though being social could not certainly be Keynes’ initial choice), Alfred dedicated his life rather academic realm. He was professor all along his life with a great effort in establishing the world of economy by the stones of mathematics concretely. However, he himself didn’t quite agree on the absolute quantification of the subject to the public. What he preferred is an easy explanation with daily examples so that a prevalent or popular branch was thus able to serve the life.

Today, when we retrospect Alfred Marshall, his teaching or social contribution is hardly important than his theories and his books. A famous joke in economics is something like that: when you have just happened to have succeeded teaching a parrot to speak “demand” and “supply”, then congratulations for you have created a new economist! Indeed, the theory of supply and demand is sharply that fundamental to all the achievements based on it. Only this can already credit him as one of the most significant economist in the history, not mentioning the theory of marginal utility together with elasticity. Even today, they seem awesome to me that human behavior can be so perfectly concluded and articulated. His works “Principles of Economics” gave him his reputation at his time as well as today, even though it is not finished for the second volume. Our comment should not reside merely upon his academic brilliance since he was also a fruitful professor. Keynes and Pigou were two excellent representatives of the several but not massive instances.

But to him even those two earth quaking students are not his most successful one, you can never guess that the answer is his wife: Mary Paley Marshall, also an economist and co-author of Alfred's books.

John Maynard Keynes

I really want to add a subtitle: when a name became a theory. In fact, few people can afford this comment, especially when the entitled theory is frequently and decisively quoted or mentioned. Nevertheless, John Maynard Keynes is honorably one of them. So after introducing the father of microeconomics, we step today for father of macroeconomics.

Unlike Adam Smith, hero in my last blog, John was cultivated in a better earth. His father was an economics lecturer in Cambridge whereas his mother is author and a social reformist. His family is almost all brilliant in any criterion. From Eton to Cambridge, his education was as smooth as most successful men. Thanks to his talent that was shown in his early time, he was luckily admitted by Alfred Marshall whose shoulder provided him with an unbelievable high stage. Fame on head, he was appointed to the Royal Commission on Indian Currency and Finance. This period of experience helped him a lot in his accumulation of practical work.

He worked for the British finance department during the World War I, though his constructive advices in the post-war reparations were not adopted. From this point we can have a reasonable conceive that if the history is rewritten at that time, would we have avoided another disaster in 1940s? Mr. Keynes was so unhappy with the final decision that he quitted.

His golden time came with the arrival of the great depression of the world economic situation, most severe in the U.S... The story was like that: from October 1929, an endless nightmare started to swallow Uncle Sam. Within only a few weeks, some 250 billion dollars vanished together with the unemployment raised sky-high. The European banks were in the queue of breaking down and so were their counter part over Atlantic. It was at that time that people came to search for another solution instead of relying on the "invisible hand" to solve this fatal trouble. Therefore, Keynes and his theory were lit up as fundamental theory support of governmental intervenes.

Here it is highly necessary that we laid out some of his main thoughts. Keynes was often called as the father of macroeconomics since that derived mostly from his famous magnum opus "The General Theory of Employment, Interest, and Money". We can mainly and roughly conclude his idea by another controlling hand from the government which would use fiscal and monetary measures to aim to mitigate the adverse effects of economic phenomena.

Something interesting about him: first, he is a not only a great man in the world of economics but also in the real world: we rarely have an economist as tall as 198cm! Another is that there were a lot of objections towards him accusing him to turn this society of capitalism into communist one. Actually if without him, the latter would have dominated the world quite possibly.

Adam Smith

1776 is a rather special year, if we avoid using wired. When China started to take a bow in the stage that she had been leading for thousands of years, the western world was just equally experiencing a huge transformation. Here, I would not talk about the birth of a great county, neither the death of the discoverer of atom. In this year, we human turned our page of economics by celebrating the appearance of "An Inquiry into the Nature and Causes of the Wealth of Nations” or more popularly, "The Wealth of Nations" . The author, also hero of this debut of my blog, is the famous economist Adam SMITH! (Hurray!!!!!!!!!!)

Should we look into the biography of this giant in economics, we could surely find millions of notes in any search engine. In brief, he, a Scottish who had lost his father before his birth, received his junior education mostly in Scotland. Then, he spent 6 years in Oxford where he failed to find what could possibly interest him. Afterwards, he began delivering lectures and in 1751 he became chair of logic and chair of moral philosophy one year later which took quite a part of his passion and career. As time passed by, Adam suited himself more in economic issues. On returning from a long journey with his student (he was thus well-paid), he devoted 10 years to his magnum opus as mentioned above. As to his personality, he was a nice person or benevolent one not only because he dedicated a considerable part of he wealth to the charity organization but also he gained his fame in his time for a book called "The theory of moral sentiments", in which he differed himself from others on base of sympathy.

His works is more than fundamental to the whole economic world. He had, in his book, studied the form of price with a correlative regards to land, labor and capital. He proclaimed that the market, appearing to be in a chaos, was actually manipulated by an "invisible hand". Three key questions that direct the market: what to produce, how to produce and for whom to produce can be reasonably answered by his invisible hand! He also pointed out that the characteristic of the efficiency of market whereas the social economic benefits mainly due to the sum of the individual profit hunting.

Two anecdotes about him:

1， When he was at his early age, Adam was once kidnapped by a band of Gypsies. If it's not because of his brave uncle, he would have been struggling for living as a clown down the street!

2, Even though he was such a great man, he had no wife nor children.

To end my first blog, I would like my dear readers to share with me some quote from Adam Smith:

"

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual value of society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

"

Re-open!

Hi, guys, I hate moving since I am a sort of nostalgia. But anyway, we have to make it easier for my dear friends to read what I'd like to share.

Therefore, I reopen my blog here and with the same enthusiasm I shall work hard on it in the following months. Sincerely, I hope you, either my classmates or strangers passing by (no advertisement please!) can leave a word or two that can help me.

Here I write this especially for Bechir, my partner in the course, that you are more than welcomed to write your comments since I am such a freshman in the world of economics that errors are absolutely inevitable.

OK, here we go!