CHAPTER 12
Neoclassical Economics
Defense of Corporate Capitalism
LEARNING OBJECTIVES
Summarize neoclassical ideology with respect to production, consumption, and
government intervention.
OUTLINE OF CHAPTER
I. Reemergence of the Classical Liberal Ideology
II. The Neoclassical Theory of Utility and Consumption
III. The Neoclassical Theory of Production
KEY TERMS
encyclical
letters from the pope intended for wide circulation
teleological
a measure of pleasure or satisfaction
ANSWERS TO END OF CHAPTER REVIEW QUESTIONS
Summarize neoclassical ideology with respect to production, consumption, and government
intervention.
1. What is the difference between competitive and corporate capitalism?
2. Explain the theory of consumer utility. Do you see any problems with quantifying
pleasure? How does this theory relate to businesses?
3. Exactly how much pleasure or utility do you receive from eating a banana? A second
banana?
4. How was the neoclassical view of the economy, i.e. small firms with no pricing power,
inconsistent with reality?
The neoclassical view of the economy was inconsistent with corporate capitalism
List and explain the five modifications made to neoclassical thought by subsequent
generations.
5. Discuss what problems each of the five modifications means to a competitive market
outcome.
1) The existence of flaws in the economic system was recognized, but some
Explain the concept of social Darwinism and its relationship to laissez-faire policies.
6. Compare and contrast laissez-faire to social Darwinism. Specifically, how did these two
views support the existence of income inequality? Why were some people poor while
others were rich?
Social Darwinists believed the government should intervene as little as possible so as not
7. Why was the idea of laissez-faire championed by the business elite? What special
privileges did the government already give to these businesspersons?
The accumulation of wealth was considered visible proof of evolutionary superiority,
8. Does the present government of the United States have a laissez-faire policy?
Articulate the major ideas of the new Christian paternalist ethic.
9. How did the new Christian paternalistic ethic support the wealthy capitalists? How did it
differ from the feudalistic version?
Wealthy capitalists were the naturally superior elite that should be venerated by the
10. According to Patten, why is competition harmful?
APPENDIX 12.1
The New Paternalism and the New Deal
LEARNING OBJECTIVES FOR APPENDIX 12.1
Understand the influence of Patten and his protégés in framing the National Industrial
government
SUMMARY OF APPENDIX
This appendix discusses the views of two contributors to the philosophy of the New Deal,