History of Economic Thought Final Exam Review

Ricardo on Absolute Advantage

No longer should we look at absolute advantage but comparatively. Comparative advantage is more important.

AW Phillips

His best-known contribution to economics is the Phillips curve, which he first described in 1958.

Why Jevons was wrong

New technology and substitutes

US dollar is backed by the

Faith of the US government to pay back our debt.

Aristotle on Tradegy of the Commons

"Even supposing that it were best for the community to have the greatest degree of unity, this unity is by no means proved to follow from the fact 'of all men saying "mine" and "not mine" at the same instant of time,' which, according to Socrates, is the sign of perfect unity in a state. . . That which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest. . . Everybody is more inclined to neglect the duty which he expects another to fulfill."

Milton Friedman quotes

"Inflation is always and everywhere a monetary phenomenon" "Inflation is caused by too much money chasing after too few goods."

J.S. Mill on Laissez Faire

"Laissez faire, in short, should be the general practice: every departure from it, unless required by some great good, is a certain evil."

Marx on religion

"Religion is the opium of the people." Marx believed that religion had certain practical functions in society that were similar to the function of opium in a sick or injured person: it reduced people's immediate suffering and provided them with pleasant illusions which gave them the strength to carry on. Marx also saw religion as harmful, as it prevents people from seeing the class structure and oppression around them, thus religion can prevent the necessary revolution.

Marx Quotes

"The capitalist has no historical value." Capitalist doesn't add value and doesn't take on risk. "Producing for production sake." Mercantilist viewpoint "Any price of labor is the minimum wage." "What, then, is the cost of production of labour-power? It is the cost required for the maintenance of the labourer as a labourer, and for his education and training as a laborer." "One capitalist always kills many... Along with the constantly diminishing number of ithe magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. Thus integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated." "Socialized production upon a predetermined plan becomes henceforth possible." "Where the worker can attain their goal by peaceful measure."

Keynes quotes

"The government should pay people to dig holes in the ground and then fill them up." "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing." "Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."

Augustine's Value Paradox

"These are the gradations according to the order of nature; but according to the utility each man finds in a thing, there are various standards of value, so that it comes to pass that we prefer some things that have no sensation to some sentient beings. . . Who would not rather have bread in his house than mice, gold than fleas? ... More is often given for a horse than for a slave, for a jewel than for a maid."

Marshall on consumer surplus

"We have already seen that the price which a person pays for a thing can never exceed, and seldom comes up to that which he would be willing to pay rather than go without it: so that the satisfaction which he gets from its purchase generally exceeds that which he gives up in paying away its price; and he thus derives from the purchase a surplus of satisfaction. The excess of the price which he would be willing to pay rather than go without the thing, over that which he actually does pay, is the economic measure of this surplus satisfaction. It may be called consumer's surplus."

Alfred Marshall quotes

"We might as well reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by demand or supply."

Plato on division of labor

"We must infer that all things are produced more plentifully and easily and of a better quality when one man does one thing which is natural to him and does it at the right time, and leaves other things."

J.B. Say Assumptions

1) Money is a medium of exchange 2) insatiable wants 3) IR: S = I 4) Flexible prices If the assumptions are correct then he is correct. All four assumptions aren't true

Marx's 10 point plan

1) abolition of private property and land 2) heavy progressive or graduated income tax 3) no inheritance tax 4) confiscation of property from all emigrants and rebels 5) centralization of banks, state run banks 6) state controlled communication and transportation 7) extension of factories and instruments of production owned by the state 8) Everyone must work 9) Combination of agricultural and industrial. Gradual abolition of the distinction between town and country. 10) Free children public education. Abolition of child labor. Combination of education with industrial production.

Milton Friedman Gov Policies

1) against wage and price controls 2) against social security 3) against free higher education 4) in favor of a volunteer army system

Five tendencies of laws that point to an economic impulsion

1) falling profit rates and accumulation of capital 2) Increasing concentration of economic power 3) deepening crises and depressions 4) industrial reserve army 5) increasing misery of the proletariat

Constraints on Walras general equilibrium theody

1) trades are made before equilibrium is reached 2) humans make mistakes in the marketplace

The Road to Serfdom

1944 best-seller written by Friedrich A. Hayek that claimed "planning leads to dictatorship" and even the best intentioned gov. efforts to direct the economy threatens individual liberty and the loss of freedom.

Walras on General Equilibrium (P and Q)

5 sets of equations: 1) quantity demanded by consumers for each good (based on preferences and price) 2) price of each good bought by households (assumes competitive markets: price = cost of production) 3) quantities of the inputs used to make goods 4) quantity demanded of inputs 5) money is only a medium of exchange Traders want to maximize utility and as we make trades we will get closer to the equilibrium.

Aquinas on care for the poor

Helps others but you are allowed to maintain social standards

political business cycles

A business cycle that results primarily from the manipulation of policy tools (fiscal policy, monetary policy) by incumbent politicians hoping to stimulate the economy just prior to an election and thereby greatly improve their own and their party's reelection chances

Karl Marx

A historian: life is a series of thesis and antithesis. Series of how we distribute wealth in society. Life is a progression: 1) Hunters and Gatherers 2) Agrarian 3) Feudal 4) Capitalism 5) Communism/Marxism

Criticisms of Mercantilism

Adam Smith ●Mercantilists have wrong conception of wealth. Real wealth should be gauged by the standard of living of households. David Hume ●Mercantilist trade surpluses are unsustainable and self limiting

Hayek on taxes

Against progressive taxation. Believed it violates human law and a violation of self determination.

Malthus

Agriculture increases arithmetically while population grows exponentially. Population will eventually exceed resources. Populations are inclined to increase in times of plenty, and that only distress, from causes such as food shortages, disease, or war, serves to stem population growth. Populations in his view are therefore always doomed to grow until distress is felt.

Milton Friedman

American economist and statistician best known for his strong belief in free-market capitalism. During his time as a professor at the University of Chicago, Friedman developed numerous free-market theories that opposed the views of traditional Keynesian economists. He illustrated the role of monetary policy in creating and arguably worsening the Great Depression. Permanent Income Hypothesis, mv = py, lags with monetary policy, natural rate of unemployment, Phillips curve.

Adam Smith on General Wages

Believed that wages will be at subsistence level. Increased wages will lead to a higher population which increases the supply of workers which will supress wages to subsistence.

Savings and investment

Must change interest rate if savings doesn't equal investment

Thinkers on poor laws/taking care of the poor

Aquinas: Helps others but you are allowed to maintain social standards Malthus: Wanted to get rid of poor laws as it removed one of the costs of having a child. The repeal of assistance to the poor. JS Mill: Just enough to survive so there is no incentive to remain poor. Feared that if welfare was too easily doled out, generations of poor people would be born into families weaned of a work ethic. He also thought that higher welfare payments would only promote higher birth rates.

Say and Ricardo believed that General gluts

Are impossible because the consumers must do something with their money and people have infinite desires for more material goods

Keynes on Gold Standard

Artificial constraint on money, limiting government discretion. Limited quantity of gold.

Quesnay on Savings

Bad, leakage from circular flow diagram which reduces demand.

Hayek on business cycles

Believed that limiting the Fed involvement will reduce the time and volatility of business cycles. Hayek believed that Keynesian policies to combat unemployment would inevitably cause inflation, and that to keep unemployment low, the central bank would have to increase the money supply faster and faster, causing inflation to get higher and higher. Really scared of government intervention.

Plato

Natural inequalities must be preserved

Petty on Public Finance

Believed the key to an economy was government spending and tax policy -Argued that the hindrance to growth was the English tax system -Led to disincentive to work

JS Mill on Wages

Believes in subsistence wage (as do most thinkers). Wages aren't fixed, believed that wages paid came from previous profits.

Ricardo on Gluts

Believes the market will balance: laissez faire. General gluts don't exist, partial gluts can.

Veblen on Business Cycles

Borrowing comes from future profit expectations. Borrow to buy stuff, extra economic activity which would lead to inflation. Higher profits lead others to borrow until there is too much borrowing. Loans will eventually default, leading to a recession. View on profits will diminish until we become optimistic again.

Jeremy Bentham

British philosopher and economist who advocated utilitarianism. Argued all men aren't born free and have equal rights. People rationally calculated their pleasure and gains. Government policy should be driven by the interests of all people. Consume to improve their life. How can we make society better off. Advocated for utilitarianism: do the greatest good for the greatest number of people. Utility theory.

Keynes

Called himself "the master." Germany can't repay the war reparations. Said "it will lead to a rise of and angry militant country in the future." Explained money to the world

Keynes on Great Depression

Can only count on the government. Need government to buy goods: deficit spending. Need more Hospitals, houses, and roads: durable goods. Or wasteful government spending. Another approach is money creation. Government jobs

Ricardo's View

Capital growth will equal population growth with no technological changes. Cost of food will increase as there is a fixed amount of land. Profits will increase, Gini coefficient will increase.

Godwin's View

Capital growth will equal population growth with technological changes. Profits will increase, costs of food will decrease, and Gini coefficient will decrease.

J.S. Mill and Adam Smith Utopian View

Capital growth will exceed population growth. Gini coefficient will decrease, and wages will increase.

Marx view of capitalism

Capitalism is a necessary evil and it will inevitably lead to communism. Capital can only increase so much and that is when capitalism will fail.

Marshall list

Ceteris paribus Twin blades: supply and demand can't exist without each other. Both blades cut the paper. Both supply and demand matter. Elasticities and mathematical formula to prove it: partial derivative. Use elasticity to explain human behavior.

Adam Smith on Rent

Charge as much as you can get away with. Recognized there is an opportunity cost with land. Rent of land is a monopoly price. Land isn't universally priced.

Bet in 1980

Commodity prices will remain stable in the long run. Simon won the bet as prices declined a little over 10 year span. Discounted technological innovation and ingenuity. Underestimated capabilities of humanity.

The positives of Capitalism

Competition and innovation, utilization of people, and increase in living standards.

Ricardo on Technological unemployment

Concerned about technological unemployment, unemployment consequent to the introduction of machinery.

Adam Smith on Mercantilism

Consumption is the purpose of production.

If we want to increase Ricardian Rent

Create more technological innovation, capital accumulation

Quesnay

Created Tableau Economique which described the flow of spending and revenues between different agents in the economy. Circular flow concept.

Alfred Marshall

Created graphs: wanted to explain economics to poor people and women. What matters about our discipline is being able to teach it to others. Math is a tool. Partial equilibrium. Supply and demand.

Paul Samuelson

Created the first major Economics textbook. Keynesian. Encouraged Kennedy tax cuts.

Adam Smith (1723-1790)

Division of labor, specialization enhances productivity. Three main reasons better with practice, inventions, and no switching costs between jobs. Free trade proponent. People acting in their own self interest benefits society as a whole.

Specialization

Do what you are good at

Physiocrats believed manufactured commodities

Don't produce wealth as input is equal to output. No surplus of wealth results from it. Believed it to be sterile

John Locke on Property Rights

Everything belongs to "God" ●But men have the right to the fruit of their labor ●This is okay if there is an ample supply of land

Ricardo on Rent

Extra value above opportunity cost. Any payment to landlords is economic rent.

positive statement

Facts based can be proved or disproved

Keynes "Animal Spirits"

Firms are driven by animal spirits: fight or flight. Businesses have a choice. Could fight and try to expand, or flight and take money out of the businesses. We have reverted back to our animal instincts. Rational choice is different than instinctual choice.

Jevons contributions

First to explain diminishing marginal utility. Believed that consumer equilibrium will be reached when any change in spending wouldn't increase the consumers total utility. "Value depends entirely upon utility." Marginal utility applies to labor markets.

Jevon's The Coal Question

Forecasted energy usage based on current energy consumption, current supply for coal, constant increase in the need of coal, and the supply will be decreasing. He believed that the price of coal will increase and that economic growth will decline. He drastically overshot the future energy usage. He believed that we should take all revenues from coal and pay down the national debt. Might as well help the future since decline in the supply of coal is inevitable.

John Stuart Mill

Formerly stated opportunity cost, supply and demand schedule. Elasticity of demand/supply. Positive and normative statements.

Bill Nordhaus Nobel Prize 2018

Founder of modern environmental economics, recognized for his work in applying economic analysis to climate change forecasts.

Keynes on unemployment

Frictional unemployment "voluntary" unemployment: seasonal and structural Cyclical unemployment exists because of an external force. Decision of present consumption is very different than savings.

MV = PY: Quantity theory of money

Friedman was concerned that if we print more money this will lead to inflation. Solution is fixed monetary rule: increase in the money supply of 3-5% annually. Monetarists biggest fear is inflation.

John Locke argued that the value of money, or its purchasing power is a

Function of the quantity of money in circulation.

Adam Smith on Monopolies

Harshly against monopolies. Misallocation of resources as it prevents money to flow to best use. He believed that society is better off without monopolies.

Samuelson on free trade

He concludes that free trade isn't always a win-win situation. It is particularly a problem, he says, in a world where large countries with far lower wages, such as India and China, are increasingly able to make almost any product or offer almost any service performed in the United States. If we trade freely with them, then the powerful drag of their far lower wages will begin dragging down our average wages. Our economy may still grow, he calculates, but at a lower rate than it otherwise would have. This opens up the argument against free trade.

Milton Friedman on unemployment

He developed the concept of the natural rate of unemployment.

Samuelson neoclassical theory

He is credited with neoclassical theory, adjustment based on expectations.

Walras on the process of reaching general equilibrium

He proposed a tâtonnement (French for groping) process. There is a trial-and-error process by which the people in the economy "grope" towards this equilibrium. The metaphor he uses is the auctioneer and this is the mechanism in which this process occurs. Similar to an auction, the price was called out and people in the market said how much they were willing to demand or supply at that price. If there was an excess of supply over demand, then the price would be lowered so that less would be supplied and more would be demanded. Thus the prices would "grope" toward equilibrium.

Hayek on governments role

He recognized a limited role for government to perform tasks of which free markets were not capable: 1) regulations that restrict legal methods of production such as limit work hours and requiring certain sanitary arrangements. 2) negative externalities 3) prevent fraud 4) creating a safety net

Menger Diamond Water Paradox

He resolved the paradox of value by showing that value is an outlook of individuals toward individual units of goods and is determined in accordance with the law of diminishing marginal utility. The less of a given good an individual has, the more each additional unit of that good will benefit him. In a desert - where an individual is on the verge of dying from thirst - he might be willing to trade a million diamonds for a glass of water that would save his life.

Malthus on Population Trap

He was right the majority of the time

Petty on Government Spending

If tax revenues are spent they wouldn't have harmful effects. It would compensate for the loss of money in circulation and the loss of jobs from taxation. Taxes could also be used to stimulate/promote national wealth. Doesn't matter how those taxes are used.

Petty on Taxes

In favor of a progressive tax - "pay according to the interest in the Public Peace; that is, according to their Estates or Riches:" Wanted a Proportional consumption tax

JS Mill on Inheritance Tax

In favor of inheritance tax. Urged for equal opportunities. If children inherit huge sums from their parents, they possess an unfair advantage over others. High inheritance taxes don't discourage work as progressive income taxes do.

Malthus on Population

In the United States the population has been found to double every twenty five years in a resource rich country. Future produce will only equal current production. Received US data from Benjamin Franklin, didn't take into account immigration.

Richard Cantillon on Entrepreneurship/Competition

Incentives to move between nations ●Between industries ●Profit motive will drive the market

John Locke on an increase in the quantity of money

Increase in the quantity of money doesn't affect the prices of goods the same way. Some goods are dearer than others.

Ricardo Repeal of Corn Laws

Increase prices, decrease subsistence wages. Landowner: Decrease costs, increase profits, and increase rent

John Locke Main Ideas (1632-1704)

Individual property rights, People respond to incentives, Usury laws, Coinage, Quantity theory of money

Quesnay on French Agriculture

Investment is critical as it is the only way to improve the productivity ratio.

Thomas Aquinas

It is lawful to sell a thing for more than it's worth. It is a sin to sell something more more than the price you paid it for without changing the good. Usury is a violation of natural moral law.

Physiocrats

Natural order. Physiocrat means rule of nature. Emphasis on agriculture, which was perceived to be the only productive type of economic activity because it produced a surplus. Laissez faire, government shouldn't intervene unless absolutely necessary. Taxation of the landowner as it was the only sector that produced a surplus. No surplus of wealth is created from manufactured commodities, input equals output. Defense of usury.

Adam Smith on Differences in Wages

Job requirements, seasonality, honor/trust, and risks of the job.

JS Mill on Aid to the Poor

Just enough to survive so there is no incentive to remain poor. Feared that if welfare was too easily doled out, generations of poor people would be born into families weaned of a work ethic. He also thought that higher welfare payments would only promote higher birth rates.

Marx on the failure of capitalism

Labor and capitalists is a zero sum game. Profit motive will alienate workers. Workers will lose incentive to innovate. Lead to monopolies. Economies of scale only last so long. Capital replaces workers. Increase in the reserve army of labor (unemployed). Eventually they will revolt.

Adam Smith on Labor

Labor is the only universal measure of value. Incorrect, value of labor changes drastically.

Marx on labor

Labor should get the fruit of their labor.

JS Mill Primary Motivations

Laissez faire, the burden is on the proponent of government to show that greater happiness required intervention. In favor of inheritance tax, self improvement. Get what they rightfully earn. Advocate of a proportional tax, a proportional tax after subsistence wage level as poor people can't afford it. Was afraid that a progressive tax might discourage work.

Positive Checks (Malthus)

Lead to premature deaths such as disease, war, famine. These were simple, effective, and brutal means of reducing population.

Capitalism Bandaids

Libraries, public education, child labor laws, progressive tax system, inheritance tax, government run communication/transportation system.

John Locke on Usury

Limit the % charged for loans -To help the borrower -Make it "fair" -Benefits merchants, others who will use loans for useful purposes -This will benefit the nation -Price ceiling

Keynes on interest rates

Liquidity preference: transaction motive, precautionary motive, and speculative motive.

Self interest

Love your neighbor as yourself

Fredric Bastiat

Made fun of people who are against free trade. Advocated for trade barrier elimination in France. Developed the economic concept of opportunity cost.

Adam Smith Natural Price

Natural price is equilibrium price or perfect competition price

Aristotle

Natural slavery. Tragedy of the commons. Dual uses of goods, proper and improper. Retail trade not a natural part of the art of getting wealth. Money was intended to be used in exchange, but not to increase at interest.

Malthus and policy

Malthus thought that charity would only increase the numbers of poor which would increase the burden on the public purse to support a growing army of dependent poor. Wanted to get rid of poor laws as it removed one of the costs of having a child. The repeal of assistance to the poor.

Mercantilism

Measured wealth on the basis of coin and precious metals. Theorists believed the amount of wealth in the world was static. Wealth consists of specie ●To increase wealth, maintain positive trade balance ●This requires government intervention -Support exports -Restrict imports -Favor industry over primary production

How did Petty prove London was wealthy?

Median number of households and burials in 3 yr period as increased wealth leads to greater population growth. Population and population growth are dependent on the survival rates of children.

Richard Cantillon on Trade Policy

Mercantilist? ●Favored protectionism ●Trade surpluses in manufacturing ●Military purpose => it would increase the population of Britain and combined with a trade surplus a greater population could be sustainable through the import of food

Adam Smith on Government

Minimal government regulation. Only for national defense, justice system, public education, and infrastructure.

Preventive Checks (Malthus)

Moral restraints (abstinence, delayed marriage until finances become balanced), and restricting marriage against persons suffering poverty or perceived as defective. Family planning services, late marriages, and celibacy.

Marx on how profits can increase

No profits will exist unless labor is exploited. Decrease wage, or increase work effort (increase length of workday or increase the speed of production).

Veblen Theory of the Leisure Class

Non subsistence wage earners. Cultural consumption creates utility. Conspicuous consumption: buy some goods to show off wealth and impress others. We gain utility from what consumption does for others. Goes against consumer rationality. Argues that we are influenced by others. Didn't believe in a stable equilibrium point. Believed there is a range of equilibrium.

Turgot

Not fully a Physiocrat, but defended and popularized their doctrines and implemented them as as Finance Minister.

Senior on Abstinence theory of profit

Notion that profits are a legitimate reward to the capitalist for abstaining from current consumption during the time when his capital is invested.

Keynes argument: what affects consumer spending?

Objective: interest rate, income and wealth distribution, expected future income, and current income. Subjective: uncertainty, desire for independence, and desires to bequeath a fortune.

Partial gluts

Occur when consumers decide to purchase less of a particular product.

Marx on avoiding revolution

Only a classless society could avoid a revolution.

Quesnay on Taxes

Only on proprietors as they contribute nothing but land ownership and spending in an economy. Productive tax would tax away productivity.

normative statement

Opinionated

Edgeworth

Opposite of Marshall: "Differential calculus is the key to unlocking economic questions." "Ordinal utility is more important than Cardinal utility." Ordinal utility: ranking utility Cardinal utility: numbers on the utility derived from consumption Invented indifference curves Came up with correlation coefficient

US inflation

Other countries wanted gold from the US - rest of the world wanted gold US closes the gold window - no longer trade dollars for gold. Other countries went on with the agreement.

Godwin

Passion between sexes will extinguish. Didn't agree that population increased exponentially. Moral improvement would outrun the growth of population. Population growth isn't an issue. Much more optimistic than Malthus. Believed in the perfectibility of man.

John Locke on Rational Self Interest

People will respond to incentives with prices ●Surpluses ●Shortages

Malthus on Wages

Population growth controlled by grim natural checks would keep wages at only a bare subsistence level. If wages rose higher, workers would have more children, leading to food shortages and an inescapable decline in the standard of living.

Population growth and resource growth

Population growth has been exponential, resources have increased just as fast as population growth.

Malthusian View

Population growth will exceed resource growth (capital). Gini Coefficient will increase and wages will decrease

Marx on Profit for Capitalists

Price - wage bill

Labor theory of value

Price = input of value

Nassau Senior

Primary architect of the reform of the poor laws, replacing aid to the ambled bodied with a new scheme that provided relief to those who were sick, aged, and poverty stricken. Devoted more attention to the influence of demand on price. Best known for his abstinence theory of profits.

Quesnay vs Mercantilism

Pro free trade, as wealth is dependent upon production and output not upon specie

JS Mill on Production

Production is immutable and scientific. Diminishing returns to resources. Distribution of wealth isn't scientific, get the wealth you earn.

Physiocrats saw agricultural production as

Productive

Adam Smith on Stock

Profits move with interest rates, direct correlation. Data indicates Smith is wrong.

Marshall on education

Progressive taxes to support education.

Marx on property

Property now belongs to all of us. We take from the capitalists as they have taken from us.

Ricardo

Proponent of free trade, wanted to repeal corn laws as he believed the corn laws increased prices. Tariffs tend to constrict economic growth. Argued against inflation, wanted to increase the money supply at a rate that doesn't cause inflation. Bitterly opposed the poor laws.

Gordon Tullock

Public choice theory economist. Political business cycles, Tullock spike, efficient market theory, rent seeking, and logrolling.

Samuelson on public goods

Public goods are non rival and non exclusive. He believes that public goods need to be collectively provided: provided by the government. We need to aggregate the marginal benefit and it should be implemented if the MB > MC. This may lead to a free rider problem.

James Mill

Pushed for reforms for British institutions along the lines of utilitarian thinking. Wage fund theory, and cost of production theory of value.

The Physiocrats

Quesnay was the leader of the school

Economic concepts in the bible

Rational choice, self interest, ownership, public/private ownership, accumulation of wealth, care for the poor, value price and exchange, and specialization,

Marx on self interest and inequality

Rational self interest won't last. Inequality is natural but not preferred.

Public/private ownership

Recognition of private ownership rights in 10 commandments

J.S. Mill on Adam Smith

Recognized that the "invisible hand" didn't always result in the individual pursuit of self interest generating a maximum of social welfare.

William Petty Main Ideas (1623-1687)

Rent, Tax Schemes, and Public Finance. In favor of trade surplus to encourage employment not to grow wealthy by capturing specie.

JS Mill Quotes

Savings is reproductive and consumption is unproductive. Mill and Say both believe that savings is always good and consumption is sometimes good.

Keynes General theory:

Says law is wrong. Argued we are focusing on the wrong thing. Should focus on consumption not production. Should focus on demand.

Ricardo on where value comes from

Scarcity is important. Quantity of labor that goes into a good. 2 types of labor: Labor as a resource (Direct) and Indirect (ex: machinery).

Marshall on short and long run

Short run is today. Short run curve is a vertical line, prices can change but not the quantity. Long run any time period not today.

Modern Culture: China

Similar to China's one child policy. Unintended consequences: abortion went up primarily unborn females, aging population, disparity between men and female, drove up the cost of women, and age mismatch.

Ricardo on Comparative Advantage

Specialize in whatever leads them to give up the least. Specialization is determined by whoever has the lower opportunity cost.

Adam Smith Role of Government

Subsidize national defense, justice system, tariffs if other countries are cheating, regulating banking, infrastructure, public education, and establishing ceilings on interest rates.

Hayek on the central bank increasing the money supply

Such increases, he argued would drive down interest rates, making credit artificially cheap. Businessmen would then make capital investments that they would not have made had they understood that they were getting a distorted price signal from the credit market. He concluded, artificially low interest rates not only cause investment to be artificially high, but also cause "malinvestment"—too much investment in long-term projects relative to short-term ones, and the boom turns into a bust.

Richard Cantillon Main Ideas (1680-1734)

Supply and demand ●Circular flow ●Entrepreneurial role ●Classical monetary theory ●Trade policy

Adam Smith on Taxes

Taxes should be proportional, progressive tax. Tax laws should be relatively stable and comprehensible. Taxes should be collected when people have money not before or after. Argued for lowest cost of taxation, wanted an efficient tax system.

John Buton

Technological unemployment. Machines and competition. As capital increases you hire less people, the more unemployed the greater supplied which suppresses wages.

Physiocrats rightfully claimed

That a nation that produces goods is weather than one who stock piles precious metals.

rent-seeking behavior

The actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.

rational ignorance

The decision not to acquire information because the marginal cost of doing so exceeds the marginal benefit.

Tullock: efficient market theory

The idea that asset prices reflect all available information. Only way to beat market consistently: luck, insider information, cheating, or special ability.

Tullock spikes

The idea that instead of mandating safety belts, it would save far more lives if the government required that large spikes were installed in the center of steering columns, because this would make drivers more acutely aware of the danger of driving too fast. Turlock states that we need to reimpose externalities to the causer of car accidents. The economic theory of risk compensation suggests that laws intended to increase safety, such as mandating safety belts in cars, can sometimes have the opposite effect by making people feel safer and therefore encouraging them to engage in riskier behavior. Moral hazard.

Bullionism

The idea that the only measure of an economies wealth and success was the amount of gold that it has.

Thomas Mun

The maximization of net exports, sell more than we consume of theirs in value. Use all land, don't tax domestically produced goods.

Adam Smith on Prices

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.

Duncan Black: median voter model

The theory that under majority rule the median (middle) voter will be in the dominant position to determine the outcome of an election. This means that as we get closer to the Election Day the candidates will be more moderate hoping to earn the support from the median voters.

Keynes on wages

The wage is equal to the marginal product of labor. Wage shall be equal to what you gave up.

Turgot Quotes Reflections on Wealth

The wages of the workman is limited by the competition among those who work for a subsistence. The husbandman is the only one whose industry produces more than the wages of his labour. He, therefore, is the only source of all Wealth. Inequality in the division of property: causes which render that inevitable. A new division of society into three classes. Cultivators, Artificers, and Proprietors, or the productive, stipendiary, and disposible classes. The rate of interest ought to be fixed, as the price of every other merchandize, by the course of trade alone.

Malthus on Overpopulation

There is a choice. Positive and preventive checks keep population growth in line with the growth of the food supply.

Adam Smith Diamond Water Paradox

Things that should be valued in the marketplace aren't. Answer is marginal utility.

Jevons on business cycles

Thought he could predict business cycles with sunspots. He attempted to correlate business cycle patterns with sunspot counts (on the actual sun) on the grounds that they might cause variations in weather and thus agricultural output.

Keynes wanted a trade clearing house

To punish country that takes advantage. Penalize countries that have a trade surplus. Then distribute the money to countries that have a trade deficit. Didn't happen because US was owning a trade surplus at the time.

Samuelson Stopler

Trade leads to an increase in the return to a country's abundant factor (ie capital and skilled labor in the USA) and a fall in the return to its scarce factor (ie unskilled labor in the USA).

Milton Friedman on Monetary Policy

Understood that there are lags with monetary policy, this limits its effectiveness. "No monetary and fiscal policies are immune to criticism."

Public Choice Theory

Using economics to analyze government behavior

Adam Smith Dual Value of Goods

Value in use and value of exchange. The things which have the greatest value in use have frequently little or no value in exchange, and vice versa.

Carl Menger

Value is subjective rather than objective. Goods acquire their value, he showed, not because of the amount of labor used in producing them, but because of their ability to satisfy people's wants.

Marx on Subsistence Wage

Value of a commodity is determined by the amount of labor that went into it. Labor supply is a commodity. Therefore, the price of labor is the amount of money needed to produce and maintain a human being: the subsistence wage.

Marshall on Unskilled labor

Very worried about poverty. Believed that unskilled labor is paid less because of unskilled labor. Wanted to limit family size amongst unskilled labor. Increase supply of unskilled labor, decreased demand with an increased supply will suppress wages. Future is bleak for unskilled labor.

Adam Smith

Viewed wealth as consumables

Keynes on trade

Want to set up a world trade system to prevent WWIII. Set up US as the center of global trade: dollar standard.

Rules if Friedman is in power

Wanted flexible exchange rates so you can use monetary policy. Additionally, flexible exchange rates encourages trade. Flexible exchange rates prevent inflation from going to other countries.

Friedrich Hayek

Wanted limited government intervention. Disbelieved in the use of Keynesian economics. Defended free market capitalism - system could fix itself. His ideology was not accepted initially, however many countries practice this now.

US experienced inflation in the 1960's due to

War, space, and war on poverty

British government turned their budget over to Keynes

Way to pay the wars. 1) Bond issuance 2) Print money 3) Increase taxes

Keynes in contractionary gap

We need people to buy more stuff

Accumulation of wealth

Wealth often a sign of favor. A good man leaves an inheritance to his children

Richard Cantillon on classical monetary theory

When one sector has more money then they will buy additional goods and services ●Drives demand in other sectors ●Encouraging national wealth to increase ●Prices will increase, but not uniformly -Some goods become more dear than others -Meat vs bread

Decline in available resources

Will increase prices, lead to famine, war, and disease

Thinkers views on taxes

William Petty: in favor of progressive system. pay according to the interest in the Public Peace; that is, according to their Estates or Riches:" Adam Smith: taxes should be proportional, flat tax after subsistence wage Quesnay: Only on proprietors as they contribute nothing but land ownership and spending in an economy. Productive tax would tax away productivity. JS Mill: Advocate of a proportional tax, a proportional tax after subsistence wage level as poor people can't afford it. Was afraid that a progressive tax might discourage work. Hayek: Against progressive taxation. Believed it violates human law and a violation of self determination. Marx: progressive tax system

Richard Stone Nobel Prize 1984

Won Nobel Prize for developing an accounting model that could be used to track economic activities on a national and, later, an international scale. Known as the father of national income accounting. Improved empirical economic analysis.

Robert Solow Nobel Prize 1987

Won Nobel Prize for his contributions to the theory of economic growth. Growth model. Labor and capital have diminishing returns. Showed that advances in the rate of technological progress do more to boost economic growth than do capital accumulation and labour increases.

Gary Becker Nobel Prize 1992

Won Nobel Prize for using economics to analyze human behavior. Believed that discrimination was costly to the discriminator. Understood that education is an investment, the idea of human capital. Decision to commit crime is a function of the costs and benefits, to reduce crime you must increase the probability of punishment or its severity.

Leon Walras

Working to macro understanding, general equilibrium theory. He demonstrated that price and quantity were uniquely determined for each commodity.

Value price and exchange

You shall not wrong someone during the exchange of goods

Cost push inflation

a situation in which the overall price levels go up (inflation) due to increases in the cost of wages and raw materials. Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Since there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation).

liquidity trap

a situation in which, "after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest."

Glut

an excess of supply in relation to demand. Can be partial or general

Kenneth Arrow's Impossibility Theorem

an impossibility theorem stating that when voters have three or more distinct alternatives (options), no ranked voting electoral system can convert the ranked preferences of individuals into a community-wide (complete and transitive) ranking while also meeting a specified set of criteria: unrestricted domain, non-dictatorship, Pareto efficiency, and independence of irrelevant alternatives.

Milton Friedman on Phillips curve

asserted that the Phillips curve was only applicable in the short-run and that in the long-run, inflationary policies would not decrease unemployment. The long-run Phillips curve is now seen as a vertical line at the natural rate of unemployment, where the rate of inflation has no effect on unemployment.

Demand pull inflation

asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.

James Buchanan

cofounder, along with Gordon Tullock, of public choice theory. Rational ignorance

Edgeworth Box

diagram showing all possible allocations of either two goods between two people or of two inputs between two production processes

Paul Romer Nobel Prize 2018

founded the modern innovation-driven approach to understanding economic growth. Recognized for modeling methods for long-term economic growth and for how market conditions can fuel technological innovation. His most influential work laid the foundations of "endogenous growth theory," which shows how technological development is spurred by deliberate policymaking that promotes research, growth and education. His research demonstrated the importance of investing in people and ideas to foster growth.

Say on value of goods

one of the first economists to realize that the value of a good derives from its utility to its user—not from the labour used to produce it.

Tullock Paradox

refers to the apparent paradox, described by Tullock, on the low costs of rent-seeking relative to the gains from rent-seeking. The paradox is that rent-seekers wanting political favors can bribe politicians at a cost much lower than the value of the favor to the rent-seeker. For instance, a rent seeker who hopes to gain a billion dollars from a particular political policy may need to bribe politicians only to the tune of ten million dollars, which is about 1% of the gain to the rent-seeker. Firms spend money to generate profits in the future

J.B. Say

supply creates its own demand. Proved general gluts were fantasies. Circular flow diagram. Supply is more important

Permanent Income Hypothesis

supposes that a person's consumption at a point in time is determined not just by their current income but also by their expected income in future years—their "permanent income". In its simplest form, the hypothesis states that changes in permanent income, rather than changes in temporary income, are what drive the changes in a consumer's consumption patterns.

Ricardo Law of Rent

that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal land for the same purpose, given the same inputs of labor and capital.

Usury

the illegal action or practice of lending money at unreasonably high rates of interest, initially charging any interest at all.

Logrolling

the practice of exchanging favors, especially in politics by reciprocal voting for each other's proposed legislation. Leads to more political outcomes but creates more costs

Cost of production theory of value

the theory that the price of an object is determined by the sum of the cost of the resources that went into making it.

wage fund theory

wages depend on the relative amounts of capital available for the payment of workers and the size of the labour force. Wages increase only with an increase in capital or a decrease in the number of workers.

Richard Cantillon Supply and Demand/Circular Flow

●All goods/services/resources influence prices ●Surpluses ●Shortages ●Money flows to its best use

John Locke on Coinage

●Changing the value of money -Leads to devaluation -Merchants demand additional coins for goods ●Gresham's Law -Bad money drives out good money

Mercantilism Question

●Is what is good for the merchant good for a nation as a whole? -Fallacy of composition?

John Locke on Quantity Theory of Money

●M x V = P x Y ●Reducing the silver in each coin leads to higher prices ●Higher prices leads to a need for additional money. The purchasing power of money is a function of the amount of money in circulation.