The American Way

--Team members –

-GUTIERREZ QUEZADA MAURICIO-

-GUZMAN MENDIOLA ALONSO-
 Table of contents
1.- Keynesian economics
2.- The "American style"
3.- Institutionalism
4.- John Kenneth Galbraith
5.- Paul Samuelson
6.- Kenneth Arrow
7.- Glossary
8.- Activity
9.- References
Keynesian economics

• During World War II, Keynes again acted as adviser to

Her Majesty's Treasury, negotiating major loans from the
US. He helped formulate the plans for the International
Monetary Fund, the World Bank, and an International
Trade Organization at the conference of Bretton Woods,
a package designed to stabilize the fluctuations in the
world economy that had occurred in the 1920s and
create a level playing field around the world. His ideas
had already shaped a new global economic order, and all
Western governments followed the Keynesian
prescription of deficit spending to avoid crises and
maintain full employment. Neoclassicists claim that a
competitive market forces producers to minimize
production costs. Robinson said that the costs of
production are simply the prices of inputs, such as
capital.
 How can it be shown that capital obtains a return
equal to its contribution to production?

• Prices are the result of trade-offs between wages and benefits, collective
bargaining, labor and management disputes, and government planning
intervention.
 The "American style"

• After World War II, the United States had

become the world's leading economic
power. Europe and the Soviet Union
were in ruins and the British Empire was
coming to an end. Until then, American
economists had played a minor role.
 Institutionalism

• Thorsten Veblen (1857-1929), who came from the rural American Midwest and worked at
the University of Chicago, is one of the best-known early critics of the "American Way."
• Theory of the Leisure Class (1899) scorned materialistic culture and wealthy people who
conspicuously consumed their wealth.
• Production and technological advancement are restricted by business practices and the
creation of monopolies. Companies protect their existing capital investments and use
excessive credit, leading to depressions and increasing military spending and warfare
through corporate control of political power.
• in 1919, along with Charles Beard, James
Harvey Robinson, and John Dewey, they helped
found the New School for Social Research
(known today as The New School). He was also
part of the Technical Alliance, [81] created in
1919 by Howard Scott. During this period he
wrote The Engineers and the Price System.
• Behind his ideas, consolidated in Institutional
Economics (1934), was the concept that the
economy is a network of relationships between
people with divergent interests. There are
monopolies, large corporations, labor disputes,
and fluctuating business cycles. However, they
have an interest in resolving these disputes.
Berle argued that the irresponsible directors of the companies were therefore shareholders of the large
public companies, they were unique individuals, with few means of communication, in short, divided
and defeated. Berle served in President Franklin Delano Roosevelt's administration during the depression
and was a key member of the so-called "Brains Trust" that developed many of the New Deal policies.
They raised the question of what the corporate structure was actually intended to achieve.
"Shareholders do not work, nor spin, to win. They are beneficiaries only because of their position. The
justification for their inheritance... can only be based on social reasons... that justification revolves
around the distribution as well as the existence of wealth." Its strength exists only in direct proportion to
the number of individuals possessing such wealth.
John Kenneth Galbraith
After the war, John Kenneth Galbraith became one of the standard
bearers for pro-active government and liberal-democrat politics. In
an age of big business, he argued, it is unrealistic to think of markets
of the classical kind. They set prices and use advertising to create
artificial demand for their own products, distorting people's real
preferences. Consumer preferences actually come to reflect those of
corporations. They recruit governments to serve their interests with
fiscal and monetary policy, for instance adhering to monetarist
policies which enrich money-lenders in the City through increases in
interest rates.
•While the goals of an affluent society and
complicit government serve the irrational
technostructure, public space is simultaneously
impoverished. Galbraith paints the picture of
stepping from penthouse villas onto unpaved
streets, from landscaped gardens to unkempt public
parks. In Economics and the Public Purpose (1973)
Galbraith advocates a "new socialism" as the
solution, nationalising military production and
public services such as health care, introducing
disciplined salary and price controls to reduce
inequality.
Paul Samuelson

in contrast to Galbraith's linguistic style, the post-war economics profession began to

synthesise much of Keynes' work with mathematical representations. Introductory
university economics courses began to present economic theory as a unified whole in
what is referred to as the neoclassical synthesis. "Positive economics" became the term
created to describe certain trends and "laws" of economics that could be objectively
observed and described in a value free way, separate from "normative economic"
evaluations and judgments.
The best selling textbook writer of this generation was Paul
Samuelson His Ph.D. was an attempt to show that
mathematical methods could represent a core of testable
economic theory. It was published as Foundations of
Economic Analysis in 1947. Samuelson started with two
assumptions. First, people and firms will act to maximise
their self interested goals. Second, markets tend towards an
equilibrium of prices, where demand matches supply. He
extended the mathematics to describe equilibrating
behaviour of economic systems, including that of the then
new macroeconomic theory of John Maynard Keynes.
Kenneth Arrow

Kenneth Arrow (born 1921) is Paul Samuelson's brother-in-law. His first major work, forming his doctoral dissertation at Columbia
University was Social Choice and Individual Values (1951), which brought economics into contact with political theory. This gave rise
to social choice theory with the introduction of his "Possibility Theorem". In his words, If we exclude the possibility of interpersonal
comparisons of utility, then the only methods of passing from individual tastes to social preferences which will be satisfactory and
which will be defined for a wide range of sets of individual orderings are either imposed or dictatorial
In 1969 the Swedish Central Bank began
awarding a prize in economics, as an
analogy to the Nobel prizes awarded in
Chemistry, Physics, Medicine as well as
Literature and Peace (though Alfred Nobel
never endorsed this in his will). With John
Hicks, Arrow won the Bank of Sweden
prize in 1972, the youngest recipient ever.
 Glossary
Economic system - is a way of producing, consuming and distributing goods and services.

Fluctuations- the level of the national income of a country representing growth or contraction

Crises- situation in which the economy of a country passes through a sudden decrease of its force, decrease
usually brought about by a financial crisis. The economic crisis may have the shape of a stagflation, of a recession
or of an economic depression.

Market- is an economic system in which economic decisions and the pricing of goods and services are guided by
the interactions of a country's individual citizens and businesses.

Production- the process of combining various material inputs and immaterial inputs (plans, knowledge) in order
to make something for consumption (output). It is the act of creating an output, a good or service which has value
and contributes to the utility of individuals.
Political Theory - The designation political theory composes the set of knowledge that derives from the
concern to understand the political phenomenon, understood as that human activity that concerns life in
common - that is, what we can understand as the public
Liberalism - Liberalism is a political, moral, and economic philosophy that defends individual freedom, the
limitation of state power, as well as equality before the law.
Artificial demand - Artificial demand constitutes demand for something that, in the absence of exposure to
the demand creation vehicle, would not exist. It has controversial applications in microeconomics (pump and
dump strategy) and advertising.
Monetary policy - is the discipline of economic policy that controls monetary factors to ensure price
stability and economic growth. It brings together all the actions available to the monetary authorities (central
banks) to adjust the money market.
Positive economics - is responsible for describing and explaining economic phenomena in search of laws
that allow the construction and testing of theories. This, leaving value judgments aside.
Activity
 References
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