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.
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

Hayek
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
wont. ~von Mises

Keynes vs. Hayek

Keynes market wont 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

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

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

Printing more money results in hyperinflation
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 1920s and

1930s
Boom time
Spending money on goods
Buying stock
Radio is the internet of the 1920s
Stock market crash brings depression of the
1930s
The government does nothing to intervene

Europe in the 1930s

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 1930s

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

1940s
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

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
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

India
Economic Ideal: Gandhi- simple selfsufficient 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
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
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

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

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

Debate
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

History matters, and so do ideas.

Does anybody remember the stimulus?

Its 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

Vote for me for class president, Ill make

iPads only $1
Mia and Jake have a bunch of iPads, everyone else
wants them. Whats going to happen?

Tie back to Germany, pre and post price

controls

Discussion

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
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

ctd
When do markets work and governments
not work?
When do governments work and markets
not work?

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?