Principle of Business Taxation Solution by qke15919


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									Capitalism – The Market Driven Economy

   The economic problem
   The economic revolution (evolution)
   Key historical economic philosophers
   Questions for next time
                The Economic Problem

   Almost from his beginnings, man has faced the
    problem of survival
    •   Not as an individual, but as a member of a social group
    •   Man seems to have survived his challenge
    •   But want, misery, inequity evidences that man’s solution is
        at best a partial one
    •   Do not underestimate the staggering effort required to build
        what you and I see around us today
           The Economic Problem
       “Advanced vs Primitive Societies”

   Man requires cooperation of a social group to survive
   But man also is endowed with a self-centered nature
   Conflict between his social partnerships and his
    untamed inner drives
   In Primitive societies, the specter of starvation forces
    cooperation through work to survive
   In more advanced societies, a larger percentage or
    even a majority of the people never touch the land,
    enter the factories, build with their own hands
            The Economic Problem
       “Challenges of Modern Societies”

   If farmers fail to plant enough crops to feed the
   If too few people choose to work the factories
   If too few people choose to be involved in the
    distribution of goods and services
   If any of thousands of intertwined tasks fail to get
    done, the supply of goods and services to a society
    would become hopelessly disorganized
   And the system would breakdown which means
    starvation, famine and pestilence
            The Economic Problem
       “Preventing Economic Meltdown”

   Organize Society around tradition – Tasks handed
    down according to custom and tradition – Son follows
    Father and a pattern is preserved
   The Whip of Authoritarian Rule – What needs to be
    done mandated by the will of the strong upon the
    backs of the weak
   For countless centuries, custom or command ruled
   No need for an economist to explain how society
    provided for itself
           The Economic Problem
    “Development of the Market System”

   The third solution to how a society provides for itself
   The game of the market system
   Only Rule: Each person should do what is to his best
    monetary advantage – The lure of gain; follow your
   “When each person pursues his self interest, he is led
    as if by an invisible hand, to do that which is best for
    society as a whole” (Adam Smith, Scotland, 1766)
   Now the need for an economist to explain how order
    comes from chaos!
          The Economic Revolution
    “The emergence of the Market System”

   The Market System could not emerge until change
    became accepted and business practices developed
     •   Bookkeeping practices – receivables/payables
     •   Political security & policies favorable to business (Taxation)
     •   Money and Measures had to become more common
     •   The profit motive had to receive religious approval
     •   Innovation had to be viewed as positive (Opposed to
         Custom & Tradition)
     •   Private Property that could be bought and Sold
     •   Labor free to move to best opportunity
     •   Capital free to seek the best return
            The Economic Revolution
           “Overcoming the obstacles”

   “Books of business, open on the table. . . Calculations
    largely in Roman numerals. . .sums are often wrong.
    . .long division a mystery. . . And the use of the zero
    is not clearly understood.”
                 The Worldly Philosophers,
                  Robert L. Heilbroner, p. 19
                 Describing a market in France, 1305
            The Economic Revolution
           “Overcoming the Obstacles”

   Andreas Ryff, a merchant, writing to his wife is
    troubled because of the nuisances of the times. He
    reports that as he travels he is stopped
    approximately once every six miles to pay a customs
    toll. All totaled, between two locations he pays thirty
    one separate levies.
        The Worldly Philosophers
        Robert L. Heilbroner, page 20
        Describing a typical business trip, 1550
           The Economic Revolution
          “Overcoming the Obstacles”

   Robert Keayne is charged with a heinous crime: he
    has made over sixpence profit on a shilling, an
    outrageous gain. The court weighs excommunication
    but finally determines to fine him two hundred
    pounds. Mr. Keayne acknowledges with tears his
    covetous and corrupt heart.
              The Worldly Philosophers
              Heilbroner, page 20.
       Describing a trial in Boston, 1644
            The Economic Revolution
           “Overcoming the Obstacles”
   In France the importation of printed calicoes is
    threatening to undermine the clothing industry. It is
    met with measures that cost the lives of sixteen
    thousand people. In Valence alone on one occasion
    77 persons are sentenced to be hanged, 58 broken
    on the wheel, 631 sent to the galleys, and one lone
    and lucky individual set free for the crime of dealing
    in illegal calicoes.
               The Worldly Philosophers
               Heilbroner, page 28
        Describing French regulation of business, 1623
    Key Historical Economic Philosophers
        “Adam Smith” (1723-1790)

   An Inquiry into the Nature and Cause of the Wealth
    of Nations (1766)
    •   When buyers and sellers meet in the marketplace, a pattern
        of production develops that results in social harmony
    •   Self interest leads to the betterment of society
    •   Technology will improve the productivity of labor, thereby
        creating more total wealth which will trickle down to all
    •   Specialization of labor multiplies man’s productive energy
    Key Historical Economic Philosophers
       “Thomas Malthus (1766-1834)

   Essay on the Principle of Population as it Affects the
    Future Improvement of Society (1798)
    •   Population tends to increase more rapidly than food supplies
    •   Society is caught in a hopeless trap in which the human
        reproductive urge would inevitably shove humanity to the
        sheer brink of existence
    •   Has given the discipline of Economics the name “The Dismal
         Key Historical Economic Philosophers
            “John Stuart Mill” (1806-1873)

   Principles of Political Economy (1849)
    •   The true province of economics is production, not
    •   Once wealth has been produced, society can distribute it as
        it pleases
    •   Brought into focus the issues of fairness and equity,
        particularly in the division of wealth between business
        owners (capitalists) and labor
    •   Mill was not the extremist like Karl Marx. Perhaps a socialist
        but not the communist
    Key Historical Economic Philosophers
          “Karl Marx” (1818-1883)

   Manifesto of the Communist Party (1848)
   Das Kapital (1867)
    •   History of mankind is a history of the conflict of the social
    •   Capitalism is efficient but suffers from flaws of fluctuations,
        and the concentration of wealth into the hands of a few
    •   Labor creates value, but is deprived of its rightful share by
        the owners of capital (business owners)
    •   Government, tradition, religion all supports a corrupt, unfair
    •   Revolution is the only solution
        Key Historic Economic Philosophers
         “Thorstein Veblen” (1857-1929)

   Theory of the Leisure Class (1899)
    •   Society admires that class of individuals who seek to gain
        wealth and power (“The Rich and Famous”)
    •   Conspicuous consumption is the trademark of this class
    •   False values and social waste – He who has the gold gets
        the goods, so society produces for this group
    •   Capitalism cannot survive – it will evolve or drift toward
        either socialism or fascism
    •   Scientist and engineers will become more important in
        building a better, more planned society in the future
Key Historical Economic Philosophers
“John Maynard Keynes” (1883-1946)
   The General Theory of Employment, Interest, and
    Money (1936)
    •   It is not production that drives an economy; it is demand
    •   That is, it is not the producer, but the buyer that determines
        the economic welfare of a society
    •   If spending is slowed for whatever reason, recession and
        unemployment are likely to result
    •   The economy may not always move toward full employment
    •   Government has a role in managing an economy through
        the use of both fiscal and monetary policy tools
    •   A revolution in economic thinking necessitated by the
        Depression of the 1930’s

   Important to recognize that economics as a discipline
    emerged with the development of the market system
   Important to recognize that the old masters wrote
    about society as they saw it in their times.
   As the economy grew, became more complex, more
    intertwined, more specialized, economic patterns
   New circumstances required an advance in thinking
   The story doesn’t end with Keynes – Many new
    challenges throughout the twentieth and twenty first
                   For Next Time

   By the end of WWI, the United States had the largest
    industrial economy in the world. What defining
    events and circumstances from the 1600’s to 1920
    helped to make this possible?

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