History of Economic Ideas: Final

2) What was the main argument underlying Adam Smith's Theory of Moral Sentiments?

- It argues that this social psychology is a better guide to moral action than is reason. -Morality, says Smith, is not something we have to calculate. It is natural, built into us as social beings. When we see people happy or sad, we feel happy or sad too. We derive pleasure when people do things we approve of, and distress when we believe they are doing harm. -Smith believed that morality and economics were related. He devised in Moral Sentiments the idea of the "impartial observer"- this theory spoke of what the opinion of the general public would be in order to come to a consensus on morality. John Rawls, came up with a similar idea known as the veil of ignorance. This idea explained that if one is unaware of their intelligence, strength & skill one will not pre-access their social standing in society.

45. Briefly discuss the influence of John R. Hicks on the development of macroeconomic theory.

- John Hicks contribtuon to economics the IS/LM model which surmised Keynesian economics, as well as his much celebrated text "Value and Capital" which greatly extends the general equilibrium and value theory. The IS-LM model, which stands for "investment-savings, liquidity-money," is a Keynesian macroeconomic model that shows how the market for economic goods (IS) interacts with the loanable funds market (LM) or money market.

47. Explain Carl Menger's distinction between goods of the first order and higher-order goods. What determines the value of higher-order goods, according to Menger? Do you accept Menger's explanation? What is the alternative that Menger was arguing against?

- Menger states that goods of lower or first-order are goods that presently have no worth, but that goods of high order represent the future value once these goods are applied to create a product for market. For example, ice in the winter time is a first order good because its use is considered worthless, but the inputs needed to create artificial ice in the coming warmer months, is a high order good due to its future value. Menger was arguing that the value of a finished good should not be determined on the value of the goods that were spent to get the finished product, with this I am cautious to agree with Menger, despite the future earning potential of a good being essential to its success in the market, everything done prior to its introduction can be seen as investment, which always draws and opportunity cost, and investment must be taken into account when valuing a good.

33a. Describe the policies the mercantilists advocated and discuss how those policies would affect a nation's economy. Why would they have argued for such policies?

- The protectionist mercantilists believed that the accumulation of gold and silver determined the wealth of a nation. Wanted to stop trade of gold and silver, believed in exports over imports, total wealth was fixed, low wages, and economic activity was production not consumption. This accumulation of gold and silver would eventually lead to competing countries gaining a comparative advantage in other resources and be more economically prosperous, which the mercantilists did not recognize.

35. Explain the main contributions of Eugen von Bohm-Bawerk, and explain how those ideas laid the foundations for later theories developed by Ludwig von Mises and Friedrich Hayek.

- Von Bohm-Bawerk introduced the concept of time in the production process, stating that production will become more efficient through more complex interaction that yields higher return (digging a hole with hands is not as efficient as taking time to collect raw materials to build shovel), as well as being famous for his criticisms of Marxism which have yet to be refuted today. His work paved the way for later economists such as Ludwig von Mises and Friedrich Hayek to develop their theories of praxeology and the economic calculation problem respectively

Over the past three centuries, economies has been preoccupied by a different main issue in each century. Briefly review the issues that dominated economics in each century, explain how the issues arose, and why the profession moved on to the new issues.

-18th Century:"How is wealth created" Mercantilism:Gold is wealth Physiocats: Wealth comes from land Adam Smith: "wealth of nations" is due to the division of labor -19th Century: "what determines Value?" Is value created on the Supply side with the cost of production OR the Demand side with the utility it brings Thomas Robert Malthus, David Ricardo, Karl Marx, and John Stewart Mill -20th Century: "What are the properties of Economic equilibrium" Alfred Marshall and John Maynard Keynes were key

Compare the ideas of John Locke and Thomas Hobbes. Explain how Locke's ideas on philosophy are related to economics

-Both Locke and Hobbes were social contractarians. Locke believed in individual rights such as the right in owning oneself and one's labor, property and resources (product of labor) he saw it as the gov'ts right to protect these rights. (ex. land in far west 1800s) Hobbes view was that their was a need for a social contract. In his 'Leviathon' he stated that all are obligated obey the rules of the sovereign, no matter who the sovereign were. Locke's ideas of owning the product of one's labor lead to the development of the free market economy. -Locke believed in individual liberty. This is important because an individual could to control one's own labor (destiny). If you controlled your own labor and not the government or lord, this would lead to a person owning the product of their work. The ownership of private property would lead to people owning assets which would generate wealth independent of a government or lord. property was a natural right derived from labor not by government as it had been in the past.

67. Compare and contrast the ideas of Edward Chamberlin, Joan Robinson, and Joseph Schumpeter on the effects of product differentiation.

-Chamberlin coined the term "product differentiation" to describe how a supplier may be able to charge a greater amount for a product than perfect competition would allow.Chamberlin argued that the major difference between monopolistic competition and perfect competition is the product differentiation that exists under monopolistic competition. -Schumpeter: The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process. . . . Capitalism, then, is by nature a form or method of economic change and not only never is but never actually can be stationary. For Schumpeter the entrepreneur is the disruptive, disequilibrating force that dislodges the market from the somnolence of equilibrium; -Joan Robinson's book is viewed as an essay in welfare economics. She assumes the world as a set of monopolists, rather than competitors, attempting to clarify her position about the concept of perfect competition versus imperfect competition and monopoly.

64. What was The Coal Question that troubled William Stanley Jevons? Discuss the relationship between the ideas in The Coal Question and the ideas of economists both before and after Jevons. Is there any factual historical evidence to support these concerns?

-Coal in truth stands not beside but entirely above all other commodities. It is the material energy of the country — the universal aid — the factor in everything we do. With coal almost any feat is possible or easy; without it we are thrown back into the laborious poverty of early times. With such facts familiarly before us, it can be no matter of surprise that year by year we make larger draughts upon a material of such myriad qualities — of such miraculous powers. Jevons paradox is the observation that improved energy efficiency can increase the overall consumption of energy by making an activity cheaper and thus more scalable or accessible. No widely applicable. some people don't care enough about efficiency to affect consumption. does make sense with space travel and it becoming more efficient and more people want to do it.

Who said what and significance: "monopolistic competition‟ theory of imperfect competition.

-Edward Chamberlin wrote about "monopolistic competition‟ - Joan Robinson‟s theory of imperfect competition. -------------- They both had theories on product differentiation

50. Describe the differences between Irving Fisher's equation of exchange and the modern "Friedman" equation. Why do the differences matter from the standpoint of monetary policy?

-Fisher's original equation of the quantity theory of money was MV=PT with T being the total amount of transactions being carried out with the money supply. However, this equation did not account for independents making exchanges, nor did it account for government spending. Firedman therefore updated and modified the equation to account for these by replacing "T" with "Q" which stands for the total GDP. Obviously this is a key difference because it fully accounts for all spending, not just in a selected market.

Explain David Hume's contributions to monetary and international finance. In the course of your discussion, describe the effects Hume would have expected from an increase in quantity of money in a country. Explain the effects both in the country with the increased quantity of money and in other countries. Relate these ideas to that of the Mercantilists.

-Hume created the idea of species-flow mechanism, this was the idea of 'international price adjustment.' What this meant for the increasing/decreasing of gold in a nation was that as the quantity of gold rises in one nation and decrease in another, the country with increasing species (gold) would contract inflation, as prices rose the buying of products from that nation would fall and the species would begin to flow in the nation with cheaper prices. Because of this the flow of money would remain balanced. A good example of this mechanism is the mercantilists who believed in holding as much gold and silver as possible, as their prices rose in relation to that of their competitors (i.e. france) the flow of species would shift, and vice versa. -Price specie flow mechanism, believed that it would be impossible for an economy to maintain a favorable balance of trade continuously as any mercantilists advocated. Balance of trade would increase levels of gold and silver.

What is Say's law? Who first presented that idea? Who gave Say's law its name? Explain the relevance of Say's law to twentieth-century macroeconomics.

-John Baptiste Say -Say's law states that the production of goods creates its own demand. -This theory assumes that markets clear and that businessmen produce goods that are demanded by the market.

What were John Locke's main contributions to economics, politics, and philosophy?

-John Locke was a social contractarian who formulated his own beliefs about anarchy. Locke believed citizens had the right to themselves and their labor. He believed that since people had these rights that it was the governments job to protect these rights. -In political theory, or political philosophy, John Locke refuted the theory of the divine right of kings and argued that all persons are endowed with natural rights to life, liberty, and property and that rulers who fail to protect those rights may be removed by the people, by force if necessary.

61. Discuss the main ideas of John R. Commons. What influence have his ideas had on contemporary economics?

-John R. Commons (1862-1945) -heterodox economist from the midwestern United States -contributions to economics in three broad areas: social reform, graduate education, and labor economics. - "the intellectual origin of the movement toward the welfare state." -Because an unregulated economy produces undesirable social consequences, capitalism needs to be modi ed by governmental intervention. Monetary policy to prevent depression, legislation to recognize the right of labor to organize, workers' compensation to assist the unemployed, health and accident insurance to care for the unfortunate, regulation of public utilities to prevent monopoly practices, and other social reforms were advocated by Commons. us, although he had almost no impact on orthodox theory, the reforms he advocated and helped to implement have signi cantly in uenced the institutional structure of American capitalism.

Mandeville argued that Morality and economics are different areas of inquiry, but how did he link together morality and prosperity?

-Mandeville rejected any ideas of moral sense being related to economics he argued that all social virtues evolved from an instinct of self-preservation; Mandeville however, linked morality and prosperity by condemning idleness. He also argued in favor of government control towards channeling activities toward social good. To Mandeville, this meant a laborious poor and exports exceeding imports for the creation of wealth. -Felt that the government should take morality and define it in the laws, in order to become a more prosperous nation

65. Carl Menger, William Stanley Jevons, and Leon Walras are often described for the similarity in their ideas on value. Explain how their ideas on value were different from one another, and discuss the lasting influence that those differences have had on the development of economic ideas.

-Menger, Jevons, Walras were all considered to be neoclassical economist -Marginal analysis was fundamentally deductive in its approach, using highly abstract models of households and rms, which were assumed to be trying to maximize utility and profits. - the marginalists were in agreement that economics was largely concerned with resource allocation, or microeconomics, but they had di erent views about the appropriate methods to be used: Jevons advocated more empirical work; Menger, abstract deductive logic; and Walras, mathematics. -all three believed According to the marginal utility theory, value depends instead upon utility, or consumption, and comes not from the past but from the future. -Whereas the classical economists had in essence assumed that demand was given and concluded that supply determined price, Jevons and Menger assumed that sup- ply was given and concluded that demand determined price. Walras had a much clearer understanding of the value problem in that he recognized the mutual interdependence of the parts of an economy.

Ludwig von Mises argued that "Economics is the youngest of the sciences." What was his argument? Does this argument appear true, or is it just an exaggerated claim of an economist?

-Mises argued that laws of social world interact like that the physical world, or that supply & demand would hold up in the same way as the law of gravity. Because of the visible progress of society, instruments recently have allowed for the study of these these social properties. - Von Mises argues this because prior to the institution of capitalism, the economy did not grow or change, it simply remained rooted in the same system. As it began to develop, intellectuals began to study its development and sought to explain its processes through their own theories. Because economics was the last of the sciences to develop behind other more obvious sciences such as astronomy, chemistry, or meteorology, it can be considered the "youngest"

What were the main contributions to economics of Sir William Petty?

-Petty wrote Political Arithmetic, which was his most prominent writing. He observed reverse population growth, specifically in the case of London. -Petty apparently was the first to explicitly advocate the use of what we would call statistical techniques to measure social phenomena.

What economist did James M. Buchanan, Nobel laureate and FSU faculty member during the 1950s, cite as having the biggest influence on his ideas? What were his contributions to economics that the Nobel committee cited in awarding him the Nobel prize?

-Prize motivation: "for his development of the contractual and constitutional bases for the theory of economic and political decision-making." PUBLIC CHOICE -The central idea of the public choice school is that individuals are as rational in their interactions with government as they are in their economic a airs -influence: John Stewart mill ? frank knight?... think its frank knight

60. Explain the specie flow mechanism that David Hume described. What are the implications of the specie flow mechanism for the policies advocated by the mercantilists?

-Specie was the gold and silver used as cash -It tracked the way it flowed around countries -More money at home lead to higher prices which goes against the mercantilist ideas -In the long run it always balances out

What was the main factor that Adam Smith said was responsible for increasing the wealth of nations? Limited?

-The wealth of nations is caused by the division of labor. -Adam Smith said the main factor for increasing the wealth of nations was the division of labor. The factor that limited the creating ability of the economy was the extent of the market of that economy

Discuss the main contributions to economics of Thorstein Veblen?

-Veblen was the leader of the institutional economic movement, and is famous in economic history due to his combining of Darwin evolutionary theories with the institutionalist approach to economic analysis. -Veblen wanted economists to try to understand the social and cultural causes and effects of economic changes

51. The ideas of Thorstein Veblen, Wesley Clair Mitchell, and John R. Commons are often linked together. Explain both what they had in common, and discuss each individual's ideas to illustrate their differences.

-Veblen, Mitchell, and Commons are all main contributors to institutional economics. All followed the beliefs of the school, examining how the evolutionary process and the role of institutions shapes economic behavior. -Using these principles to guide them, they each analyzed a different aspect of the American economy. -Veblen focusing on the unnecessary waste of wealth and resources to demonstrate one's own personal success. -Commons proposed his theory that the economy is in-fact a complicated web of social interaction and relations built through these interactions, giving the incentive for all players to work cooperatively to advance each other's interests. -Mitchell for his empirical work on business cycles and leading the National Beureu for Economic Research in its early decades. ------------------------------------------------------- Veblen, Mitchell, and Commons are all main contributors to institutional economics. All followed the beliefs of the school, examining how the evolutionary process and the role of institutions shapes economic behavior. Using these principles to guide them, they each analyzed a different aspect of the American economy, Veblen focusing on the unnecessary waste of wealth and resources to deomstrate one's own personal success, Commons proposed his theory that the economy is in-fact a complicated web of social interaction and relations built through these interactions, giving the incentive for all players to work cooperatively to advance each other's interests, and Mitchell for his empirical work on business cycles and leading the National Beureu for Economic Research in its early decades.

Who were the physiocrats? What were their main ideas, and how do the policy ideas of the physiocrats compare to those of mercantilist?

-WEALTH COMES FROM LAND- The physiocrats were French economists who believed that the wealth of nations was derived solely from the value of agriculture or land development. Manufacturing is just rearranging things and farming creates something. Mercantilist believed that gold is wealth and their goal was to accumulate gold and silver

Discuss the main contributions of John Stuart Mill to economics. Which economists had the greatest influence on his work? How influential was Mill, both in his own day, and on those economists who followed him.

-wrote principles of political economy- Complete restatement of Ricardo just further developed; book was standard for its time. Believed wealth should be redistributed. Problem with this was you take away from the producer's incentives. Also if you cut down population you would slow production. Would rather have socialism then what he saw going on in Britain at the time

How does Adam Smith argue that college teachers should be compensated? Briefly explain the logic behind argument.

Adam Smith believed that college professors should be compensated by their students. When Smith observed the college education of England he saw meager intellectual activity and low quality instruction, he linked this to the income of professors being independent of the students they attracted.

Adam Smith and David Ricardo had significantly different views on the future of prosperity in a market-driven economy. Explain the views of both economists. Which view do you think is more correct? Which view do you think is more closely related to contemporary economic theory?

Adam Smith believed that the future was bright in a market driven economy, he saw the division of labor and prosperity only being limited to the extent of the market (which was limitless). Ricardo had a more dismal view on prosperity in a market economy because he believed that society would eventually be stuck at a subsistence level (or at the minimum needed to survive). In recent history it is apparent to see the tremendous reduction in poverty (less starvation, high mechanized jobs for many, microwave ovens, electricity, etc.) If we compared the future today with Ricardo's dismal view of subsistence, it would appear that the extent of the market has increased like Smith predicted. Contemporary economic thought generally describes economics as making choices in society impart to scarcity, the majority of society believes that natural resources will eventually deplete to the point where the general population cannot be supported (Ex. collapse by Jared Diamond) at the same time however scarcity up until this point has forced individuals to come up with creative ideas. Therefore it is also a possibility that economics can be redefined as how individuals cooperate to meet their needs. Yet, Ricardian principles are more closely related to contemporary economic thought.

26. Explain how the concept of equilibrium became the central idea in 20th century economics. What ideas does economics slight by taking an equilibrium approach to analyzing economic activity?

After Marshall determined the question "what decides value?" was largely irrelevant, the emergence of marginalization and the shift in focus to how both sides (production/distribution and exchange) worked together to create equilibrium in a chaotic market. However, focusing so closely on the margins often keeps economists from being able to see the "big picture" in economics on the whole just as only focusing on the "big picture" makes analyzing specific economic problems difficult.

What two people have considered themself to be the father of neoclassical economics?

Alfred Marshall and Leon Walras each have a claim to being the father of neoclassical economics, which sees price as determined by both supply and demand and recognizes the complex interrelatedness of all economic activity. e dual determination of prices and awareness of the interde- pendency of all variables marked the death of the classical labor theory of value, the classical cost of production theory of value, and the classical residual theory of income distribution.

22. What were Alfred Marshall's main contributions to economic theory? Discuss how his ideas influenced the development of economics in the 20th century.

Alfred Marshall was the founder of the dominant Cambridge school of economics. Set out to solve the question of "what determines value?" However, he soon deemed the question irrelevant, stating we "might as well ask which side of the scissors does the cutting?" Marshall's framework for market forces (such as supply and demand) are still used today as introductory lessons into economics

31. Why did the industrial revolution begin in Britain? Contrast conditions in Britain with other nations (such as France, China, Germany) to explain why Britain had such a favorable environment for industrialization.

Britain was a lot more decentralized than other governments in Europe, the product of this was a more competitive environment and less barriers to trade. The british crown had a lot less power than other European states, such as Spain, France, and Germany. China also had a top down economy that prevented industrialization to its full potential and created barriers to trade. The British Common Law gave power to smaller municipalities in exchange for taxation for war, it also allowed for production and decision making free of many governmental regulations (including wage regulation).

40. What is meant by "heterodox economics"? Discuss the influence of heterodox economists on the development of economic ideas.

Characteristically defined by "revealed illegitimacy", this is the portion of economic thought which is considered outside the realm of mainstream economics. Figures like Alfred Marshall founded neoclassical economics by using heterodox economics while analyzing the competing claims of historically oriented economists and abstract theorists. Furthermore, the heterodox views of Malthus and Marx were partially reflected in the Keynesian revolution.

Adam smith believed efficiency can come from..

Efficiency can come from three sources: the worker becomes more skilled in his movements, the worker spends less time ending one activity and beginning another,

29. One can make the argument that the modern market economy only came into being within the past 300 years, when land, labor, and capital began being viewed as marketable factors of production. Yet trade has existed for thousands of years. Explain the reasoning behind this argument and discuss the degree to which this reasoning seems valid.

Entrepreneurship embodies the fundamental ideals of capitalism championed by Adam Smith, in a sense an entrepreneur embodies what Adam Smith advocated in The wealth of nations. Walras and Hayek, recognizing the entrepreneur as a market force, differ on his role. Walras believes he is an equalizing market force that follows a stipulated set of behaviors that creates equilibrium in the market, whereas Hayek believes he is a player who uses knowledge obtained from the market to introduce previously unknown profit opportunities

One might argue that entrepreneurship is the key ingredient to economic progress. Discuss how the concept of entrepreneurship relates the the main ideas of Adam Smith, Leon Walras, and Friedrich Hayek. Discuss the similarities and differences in their approaches

Entrepreneurship embodies the fundamental ideals of capitalism championed by Adam Smith, in a sense an entrepreneur embodies what Adam Smith advocated in The wealth of nations. Walras and Hayek, recognizing the entrepreneur as a market force, differ on his role. Walras believes he is an equalizing market force that follows a stipulated set of behaviors that creates equilibrium in the market, whereas Hayek believes he is a player who uses knowledge obtained from the market to introduce previously unknown profit opportunities

27. Economists use simplified models to depict a more complex reality. Discuss the role of simplifying and unrealistic assumptions in economic models. Do such assumptions enhance or detract from a model's usefulness?

Excess assumptions sometimes get in the way of inferences that could be made otherwise, and these assumptions ultimately hurt a model's usefulness. ex. price ceiling model to explain effects of price gouging, and the gasoline shortage in the 1970s. Some simplifying done by economists in advance is assuming that the market is perfectly competitive and helps the model become a good simplified depiction of reality. Therefore, in simplifying models economists focus on what information is relevant to the problem at hand.

52. Discuss the similarities and differences in the way the work of John R. Hicks and Paul Samuelson influenced the development of twentieth century economics.

Following his release of the IS/LM model, Hicks and later Samuelson sought to absorb Keynesian economics into neoclassical economic thought, the result being Neoclassical Synthesis. However their approaches were slightly different, in that Hicks did not prominently display and support his theories with mathematics, whereas Samuelsson made it the cornerstone of his theories.

What is Hermann Heinrich Gossen best known for? What impact did his ideas have on the development of economics?

Gossen is most known for having a mathematical representation for marginal utility, and trying to come up with a mathematical representation of economics. This shows that the idea for marginal utility was came about before the 1870s.

Heilbroner argues that land, labor, and capital, as marketable factors of production, have only existed for a few hundred years. Explain his reasoning and discuss the degree to which his reasoning seems valid.

Heilbroner observed that capitalism and market economies allowed for industrialization to occur (specifically during the industrial revolution), even though a system of trade had been in place for thousands of years. Before IR, most commerce was done by sea, but during the industrial revolution, transportation and communication evolved, also before IR there wasn't much of a market for land since people held onto it for their families. Heilbroner was able to attribute the prosperity of the era to the free market and capitalism that fostered competition. An example of this was the Dutch east India trade that stock markets came into being and brought trade to a new era of capitalism. This competitiveness of this era also enabled major producers of the time to continue improving the products they sold to the general public. Therefore new advancements continued to take place and society was bettered as a whole.

Explain David Hume's contributions to monetary and international finance. In the course of your discussion, describe the effects Hume would have expected from an increase in quantity of money in a country. Explain the effects both in the country with the increased quantity of money and in other countries. Relate these ideas to that of the Mercantilists.

Hume created the idea of species-flow mechanism, this was the idea of 'international price adjustment.' What this meant for the increasing/decreasing of gold in a nation was that as the quantity of gold rises in one nation and decrease in another, the country with increasing species (gold) would contract inflation, as prices rose the buying of products from that nation would fall and the species would begin to flow in the nation with cheaper prices. Because of this the flow of money would remain balanced. A good example of this mechanism is the mercantilists who believed in holding as much gold and silver as possible, as their prices rose in relation to that of their competitors (i.e. france) the flow of species would shift, and vice versa.

Discuss the influence that Sir William Petty had on the key ideas of Adam Smith and Thomas Robert Malthus. Were Smith and Malthus in agreement with Petty, or did they argue against against him?

It was Sir William Petty believed in a laissez faire economy, and that barriers to trade were harmful to the prosperity of a nation. He warned about gov't who interfered too much in an economy, and that restricting the flow of specie was harmful. Petty believed the division of labor as a factor making goods both better quality and cheaper. (watch vs. pin factory example). He also created a model for population growth that looked at growth backwards. Ricardo agreed with Petty's ideal of comparative advantage and Malthus used Petty's model on population growth to influence his exponential growth idea.

What were the main contributions of Jeremy Bentham to economics? How did Bentham's work influence the development of economic ideas?

Jeremy Bentham's main contributions were his belief that public policy could be viewed as scientifically as physics. He believed that one could quantify utility in order to benefit cardinally, however Bentham failed to realize that utility could only be quantified ordinally, his fault was in ranking orders but not magnitudes. He developed economic ideas through the proposed progressive tax system. He believed that the rich did not benefit as much from money as the poor could. Because of his fault in context of number ranking, his views on this matter did not hold up. Defined efficiency with happiness

48. What was the major lasting contribution that William Stanley Jevons made to economics? In developing his contribution, whose ideas did he say he was trying to overturn? Why was he trying to overturn them?

Jevons lasting contribution to economics was his theory of utility, where very extra unit of a good had less value, which railed against the theories of David Ricardo who believed value rested entirely on the production process, clearly the opposite of what Jevons believed to be the answer to "what determined value?"

What was the major lasting contribution that William Stanley made to economics? In developing his contribution, whose ideas did he say he was trying to overturn? Why was he trying to overturn them?

Jevons lasting contribution to economics was his theory of utility, where very extra unit of a good had less value, which railed against the theories of David Ricardo who believed value rested entirely on the production process, clearly the opposite of what Jevons believed to be the answer to "what determined value?"

18. Keynes argues that "animal spirits" control investors' decisions on how to allocate investment resources, resulting in irrational investment decisions and excessive volatility of investments. When Keynes then looks ahead, what does he expect to see happen to stabilize investment behavior in the future?

Keynes argued that investment from the private sector sometimes led to inefficient macroeconomic outcomes, thus a response from the public sector was needed, such as monetary policy actions by the central bank and fiscal policy actions by the government in order to balance out the inefficiencies.

What is logical positivism? How does this elate to the falsificationsim expressed in the writings of Karl Popper?

Logical Positivism was developed by members of the Vienna Circle. This form of positivism considers the only meaningful philosophical problems are those that can be solved by logical analysis. It also represented the idea that science is meant to establish "truth." Karl Popper wrote about the "verification" of logical positivism. He postulated that empirical tests do not "verify" a theory, only its falsity, and this is why his approach is sometimes called fablsificationism.

While Ricardo and Malthus agreed on many things, they also disagreed in a few significant areas. Discuss those areas of disagreement, and explain which economist's argument had more merit in each case.

Malthus and Ricardo disagreed on the corn laws which prevented Britain from importing grain & corn. Malthus believed that the laws were good policy because it would increase domestic profit, Ricardo however disagreed because he took comparative advantage into account. Since Ricardo believed that land was scarce, he saw more land in different areas, he concluded that it would be more productive for nations to trade corn & grain. Ricardo and Malthus also disagreed on Say's Law, Ricardo believed that there were no gluts while Malthus saw evidence of these gluts in a subsistent world, he argued that their would need to be pure consumers, but the capitalists saved and workers did not have enough wealth to buy the necessary amount of goods, and because of this difficulties in fully employing resources.

19. Compare and contrast Joseph Schumpeter's view of profits with the view of Karl Marx. Where do profits come from? What causes them to decline?

Marx argues that profits originate from a "surplus value" in that capitalists earn their profit by exploiting the working class by not paying them equal wages for the hours they work. Schumpeter's view on profits is that profits originate from innovation and entrepreneurial activities. Marx argues that the decline in profits are a result of investment of technologies that replace physical capital and Schumpeter argues that decline in profit is a short-run result of creative destruction

43. Carl Menger argued that costs are subjective. What does this mean? What alternative to subjectively-determined costs was Menger arguing against? When Alfred Marshall argued that the value of a good is determined by both supply and demand, does this suggest that Menger was wrong about the subjective nature of costs? Discuss the relationship between Marshall's and Menger's ideas on this subject.

Menger believed that instead of possessing units of utility, good's values instead were determined by their varied use of importance. The ideas of Menger and Marshall are actually closely aligned, in that Menger's subjective theory of value claims that both supply and demand benefit from exchange. Menger was simply pointing out that some goods are more valuable than others and thus in a barter economy, it is difficult to trade a lesser good for the perceived greater good, but the introduction of money is always an acceptable medium of exchange

What is Say's Law? Discuss the viewpoints on Say's Law held by David Ricardo and Thomas Robert Malthus. Do they agree or disagree? What were the arguments of each?

Says Law presumed that a capitalist system automatically provided full employment of its resources and that high rates of economic growth, this is more commonly described as "supply creating its own demand." Also known as 'gluts' to Say this was not a problem because he believed market forces would even out. While Ricardo agreed with Say because he believed the cost of production determined the value of a good, Malthus disagreed. Malthus claimed to have seen evidence of gluts, he believed that there were difficulties in maintaining full employment, and that this surplus was due to underconsumption in a subsistent world.

Joseph Schumpeter and Israel Kirzner both depicted entrepreneurship as a crucial economic activity, yet they had strikingly different interpretations of the role entrepreneur's play in the economy. Compare and contrast Schumpeter's and Kirzner's ideas on entrepreneurship.

Schumeter's entrepreneur is one who enters and innovates the market through their business practices, either with an entirely new concept or an improving upon an already existing concept. Schumpeter saw the entrepreneur, as a destructive force in the economy, leading to is views on "creative destruction." Kirzner's entrepreneur is the opposite; an equilibrating force in the market that discovers previously unnoticed profit opportunities until competition eliminates these profit opportunities.

Explain Karl Marx's theory of surplus value, making sure to differentiate relative surplus value from absolute surplus value.

Surplus value comes because we have a monetary economy, workers are hired by capitalist, and are paid a salary by capitalist.

58. What is the idea behind the "single tax?" Whose idea was it? What is the basis of the idea? What influence did it have?

The "single tax" is a system, established by Henry George, that is based on using a singular, land value tax. George believed land to be public property, and by solely taxing land, the need to tax on productive activities would cease. The use of a single land tax remains a favored policy among environmentalists and a central component to the US Green Party's economic platform.

What is the first subject Adam Smith discusses in The Wealth of Nations? Why is this significant?

The first subject was that a nations wealth is dependent on the division of labor. This is significant because even though it was the first sentence, it was the thesis for his entire work.

Discuss the views of mercantilist related to raw materials. How did raw materials, both produced domestically and abroad, fit into their system?

The mercantilist believed that all raw materials in a country should be used in domestic manufacturing; also they believed that every inch of a country should be used for manufacturing, agriculture, and mining. They believed the exporting of gold and silver should be prohibited, and that import of foreign goods be discouraged as much as possible. They wanted imports to be raw materials that could be finished at home.

Who were the scholastics? When did they write, who were the most important scholastic writers, and what were the main ideas they developed?

The scholastics were educated monks from the 12 century. The most notable was St. Thomas Aquinas who addressed economic issues regarding the institution of private property and the concepts of just price and usury

Some have criticized economic models for being overly simplified, and unrealistic. Discuss the role of simplifying assumptions in economic models, and consider both the advantages and disadvantages of simplifying and unrealistic assumptions.

The simplification of the economic model is a by product of the marginal revolution in that it gives economists the ability to approach economics from a top-down approach, but impairs their vision to see economics on the whole. This criticism is exemplified by Friedrich Hayek's argument that it is impossible to full account for all market forces in a singular economic plan

What were the key policy ideas of the mercantilists? Explain the logic of the mercantilist ideas, and discuss whether their policies were oriented toward creating wealth and prosperity. What was it that motivated the mercantilists to support their ideas?

They believed that the accumulation of gold and silver determined the wealth of a nation. Wanted to stop trade of gold and silver, believed in exports over imports, total wealth was fixed, low wages, and economic activity was production not consumption.

The mercantilists advocated protectionist policies that most economists today would argue reduce a nation's prosperity. Why would they have argued for such policies?

They did not think that trading gold and sliver would make them more wealthy. Wealth is valued by how much gold and silver you have. So trading it away would be trading wealth away.

What was the socialist calculation debate? Who were the main participants? Explain both sides, and discuss the strengths and weaknesses of each position.

Typically viewed as a debate between proponents of capitalism and proponents of socialism, the socialist calculation debate was in fact largely a debate between two sides of socialists regarding the utilization of markets and money in a socialist system and to what degree the law of value would be applied to a socialist system. Von Mises and Hayek argue that without individuals determining the price at which they are willing to pay for a good, no feedback can be taken and thus the market cannot adjust where necessary due to government controlled prices. However, this argument has drawn criticism due to Mises assumption that socialism is "impossible" rather than it simply being "inefficient" and thus he overstates the scope of his case Ludwig von Mises argued powerfully that such economic calculation cannot be made; economic theory demonstrates that rational central planning is simply impossible

How has the theory of value evolved over the past three centuries? Consider the ideas of the mercantilists, physiocrats, Adam Smith, Ricardo, Marx, and Marshall (and others if you want) in developing your answer.

Value to the merchantalists surrounded the idea of the accumulation of gold and silver, or how much bullion a nation had determined their well-being. The physiocrats saw value in the land and what resources could be created through agriculture. Smith argued that value was created through the division of labor which ultimately increased capital and broadened the extent of the market (which is ever extending) Ricardo however, saw a good only being as valuable as the labor embodied in the good, or the Labor Theory of Value. Karl Marx agreed with Ricardo about the value of a good being determined by labor embodied, but also developed his own ideas with The Surplus Theory of Value. Marx believed that as workers created value in excess of their labor costs, that this value was appropriated by capitalists as profit. Alfred Marshall viewed the Labor Theory of Value as being oriented on supply, and argued that the value of a good is determined by both supply and demand.

57. What was Jean-Baptise Say's primary contribution to economics? Explain how his ideas were used and interpreted by later economists.

While "Say's Law" was that the economy is self-regulating, so that production is ultimately the source of demand, it has been misinterpreted and frequently taken to mean that "supply creates its own demand." Contemporary economists John Maynard Keynes and Thomas Malthus criticized Say's law, and later, economists point to Keynes as partly or chiefly responsible for the confusion. However, Say was heavily influenced by Adam Smith and the economic theories he laid out in his 1776 "Wealth of Nations." He was a big proponent of Smith's free market theories, promoting his laissez-faire philosophies and helping to popularize them in France through his academic work and teaching. Among others of his teachings, Say also expressed the belief that deflation could be a positive occurrence, if it resulted from productivity gains. He also wrote about money and banking, shared his views of taxation as burdensome, and is credited by Robert L. Formaini in the Federal Reserve Bank of Dallas's Economic Insights publication, as among the first economists to discuss entrepreneurship and notions of utility, describing entrepreneurs as helpful in meeting "human wants." Other economist contemporaries included James Mill, Jeremy Bentham and David Ricardo.

66. Knut Wicksell is known for many contributions to economic analysis, including his theory on just taxation. Which economist is best-known for expanding on Wicksell's ideas on taxation? Discuss the way that those ideas have been developed into the twenty-first century.

Wicksell tried to develop a so-called income approach to explain the general level of prices; that is, to develop a theory of money that explains fluctuations in income as well as uctuations in price levels. John Maynerd Keynes and keynesian economics

Ricardo identified the three economic factors of production as land, labor, and capital. What determines the payments made to each factor? As an economy progresses, describe how Ricardo expected that payments to each of these factors would change.

a. The payments made to land labor and capital are rent, wage, and profit. Ricardo believed that rent did not need to be paid in order for land to be productive, this was contrasted to wage which needed to be paid for laborers to be attractive. Ricardo said that as exponential population growth occurred, the land becomes overworked and food prices rise, because of this the subsistence wage of a worker must also grow. b. Land earns Rent> Labor Earns Wages> Capital earns Profit Dont have to pay rent to land for land to be productive.

Explain the key idea in Malthus's Essay on Population. Discuss the way in which this idea relates to Adam Smith's views on the future direction of economic progress and prosperity.

believed that population would continue to grow, and resources would continue to shrink. Population growth would increase land rents due to scarcity of land.

Discuss the main contributions to economics of David Hume.

he was a liberal Mercantilist, created the price specie flow mechanism. Hume pointed out that it would be impossible for an economy to maintain a favorable balance of trade continuously, as many mercantilists advocated. He thought that balance of trade would lead to higher quantities of gold and silver.

What were the main contributions to economics of Richard Cantillon?

was modern in that (1) he started with the goal of establishing basic principles of economics through the process of reasoning, and, more important, (2) he wanted to collect data to use in the process of verifying his principles