The
history of economic thought deals with different thinkers and theories in the subject that became
political economy and
economics from the
ancient world to the present day.
[citation needed] It encompasses many disparate
schools of economic thought. Greek writers such as the philosopher
Aristotle examined ideas about the art of wealth acquisition and questioned whether property is best left in private or public hands.
[citation needed] In medieval times,
scholars such as
Thomas Aquinas argued that it was a
moral obligation of businesses to sell goods at a
just price.
[citation needed]
Scottish
philosopher Adam Smith is often cited as the father of modern economics for his
treatise The Wealth of Nations (1776).
[1][2] His ideas built upon a considerable body of work from predecessors in the eighteenth century particularly the
Physiocrats. His book appeared on the eve of the
Industrial Revolution with associated major changes in the
economy.
[3]
Smith's successors included such
classical economists as the
Rev. Thomas Malthus,
Jean-Baptiste Say,
David Ricardo, and
John Stuart Mill.
[citation needed] They examined ways the landed, capitalist and labouring classes produced and distributed national output and
modeled the effects of
population and
international trade.
[citation needed] In London,
Karl Marx castigated the capitalist system, which he described as exploitative and alienating.
[citation needed] From about 1870,
neoclassical economics attempted to erect a positive, mathematical and scientifically grounded field above normative politics.
[citation needed]
After the wars of the early twentieth century,
John Maynard Keynes led a reaction against what has been described as
governmental abstention from economic affairs, advocating interventionist fiscal policy to stimulate economic demand and growth.
[citation needed] With a world divided between the
capitalist first world, the
communist second world, and the poor of the
third world, the
post-war consensus broke down.
[citation needed] Others like
Milton Friedman and
Friedrich von Hayek warned of
The Road to Serfdom and
socialism, focusing their theories on what could be achieved through better
monetary policy and deregulation.
[citation needed]
As
Keynesian policies seemed to falter in the 1970s there emerged the so-called
New Classical school, with prominent theorists such as
Robert Lucas and
Edward Prescott.
[citation needed] Governmental economic policies from the 1980s were challenged, and
development economists like
Amartya Sen and
information economists like
Joseph Stiglitz introduced new ideas to economic thought in the twenty-first century.
[citation needed]
[edit] Early economic thought
The earliest discussions of economics date back to ancient times (e.g.
Chanakya's
Arthashastra or
Xenophon's
Oeconomicus). Back then, and until the industrial revolution, economics was not a separate discipline but part of philosophy. In
Ancient Athens, a slave based society but also one developing an embryonic model of democracy,
[4] Plato's book
The Republic contained references to specialization of labour and production. But it was his pupil Aristotle that made some of the most familiar arguments, still in economic discourse today.
[edit] Aristotle
Aristotle's
Politics (c.a. 350 BC) was mainly concerned to analyse different forms of a state (
monarchy,
aristocracy,
constitutional government,
tyranny,
oligarchy,
democracy) as a critique of Plato's advocacy of a ruling class of "philosopher-kings". In particular for economists, Plato had drawn a blueprint of society on the basis of common ownership of resources. Aristotle viewed this model as an oligarchical
anathema. In
Politics, Book II, Part V, he argued that,
Property should be in a certain sense common, but, as a general rule, private; for, when everyone has a distinct interest, men will not complain of one another, and they will make more progress, because every one will be attending to his own business... And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property. These advantages are lost by excessive unification of the state.
[5]
Though Aristotle certainly advocated there be many things held in common, he argued that not everything could be, simply because of the "wickedness of human nature".
[5] "It is clearly better that property should be private", wrote Aristotle, "but the use of it common; and the special business of the legislator is to create in men this benevolent disposition." In
Politics Book I, Aristotle discusses the general nature of households and market exchanges. For him there is a certain "art of acquisition" or "wealth-getting". Money itself has the sole purpose of being a medium of exchange, which means on its own "it is worthless... not useful as a means to any of the necessities of life".
[6]
Nevertheless, points out Aristotle, because the "instrument" of money is the same many people are obsessed with the simple accumulation of money. "Wealth-getting" for one's household is "necessary and honourable", while exchange on the retail trade for simple accumulation is "justly censured, for it is dishonourable".
[7] Of the people he stated they as a whole thought acquisition of wealth (chrematistike) as being either the same as, or a principle of oikonomia (
household management - oikonomos),
[8][9] with
oikos as house and
nomos in fact translated as custom or law.
[9] Aristotle himself was highly disapproving of
usury and cast scorn on making money through means of a
monopoly.
[10]
[edit] Middle Ages
St
Thomas Aquinas taught that raising prices in response to high demand was a type of theft.
Thomas Aquinas (1225–1274) was an Italian theologian and writer on economic issues. He taught in both
Cologne and Paris, and was part of a group of Catholic scholars known as the
Schoolmen, who moved their enquiries beyond theology to philosophical and scientific debates. In the treatise
Summa Theologica Aquinas dealt with the concept of a
just price, which he considered necessary for the reproduction of the social order. Bearing many similarities with the modern concept of long run equilibrium a just price was supposed to be one just sufficient to cover the
costs of production, including the maintenance of a worker and his family. He argued it was immoral for sellers to raise their prices simply because buyers were in pressing need for a product.
Aquinas discusses a number of topics in the format of questions and replies, substantial tracts dealing with Aristotle's theory. Questions 77 and 78 concern economic issues, mainly relate to what a
just price is, and to the fairness of a seller dispensing faulty goods. Aquinas argued against any form of cheating and recommended compensation always be paid in lieu of good service. Whilst human laws might not impose sanctions for unfair dealing,
divine law did, in his opinion. One of Aquinas' main critics
[11] was
Duns Scotus (1265–1308) in his work
Sententiae (1295).
Originally from
Duns Scotland, he taught in Oxford, Cologne and Paris. Scotus thought it possible to be more precise than Aquinas in calculating a just price, emphasising the costs of labour and expenses – though he recognised that the latter might be inflated by exaggeration, because buyer and seller usually have different ideas of what a just price comprises. If people did not benefit from a transaction, in Scotus' view, they would not trade. Scotus defended merchants as performing a necessary and useful social role, transporting goods and making them available to the public.
[11]
[edit] Mercantilists and nationalism
Main article:
Mercantilism
A 1638 painting of a French seaport during the heyday of
mercantilism.
From the
localism of the Middle Ages, the waning
feudal lords, new national economic frameworks began to be strengthened. From 1492 and explorations like
Christopher Columbus' voyages, new opportunities for trade with the
New World and Asia were opening. New powerful monarchies wanted a powerful state to boost their status. Mercantilism was a political movement and an economic theory that advocated the use of the state's
military power to ensure local markets and supply sources were
protected.
Mercantile theorists thought
international trade could not benefit all countries at the same time. Because money and
gold were the only source of riches, there was a limited quantity of resources to be shared between countries. Therefore,
tariffs could be used to encourage exports (meaning more money comes into the country) and discourage imports (sending wealth abroad). In other words a positive
balance of trade ought to be maintained, with a surplus of exports. The term mercantilism was not in fact coined until the late 1763 by
Victor de Riqueti, marquis de Mirabeau and popularised by
Adam Smith, who vigorously opposed its ideas.
[edit] Thomas Mun
English businessman Thomas Mun (1571–1641) represents early mercantile policy in his book
England's Treasure by Foraign Trade . Although it was not published until 1664 it was widely circulated as a manuscript before then. He was a member of the
East India Company and also wrote about his experiences there in
A Discourse of Trade from England unto the East Indies (1621).
According to Mun, trade was the only way to increase England's treasure (i.e., national wealth) and in pursuit of this end he suggested several courses of action. Important were frugal consumption to increase the amount of goods available for export, increased utilisation of land and other domestic natural resources to reduce import requirements, lowering of export duties on goods produced domestically from foreign materials, and the export of goods with
inelastic demand because more money could be made from higher prices.
[edit] Philipp von Hörnigk
Philipp von Hörnigk (1640–1712, sometimes spelt
Hornick or
Horneck) was born in
Frankfurt am Main and became an Austrian civil servant writing in a time when his country was constantly threatened by
Ottoman invasion. In
Österreich Über Alles, Wann es Nur Will (1684,
Austria Over All, If She Only Will) he laid out one of the clearest statements of mercantile policy. He listed nine principal rules of national economy.
To inspect the country's soil with the greatest care, and not to leave the
agricultural possibilities of a single corner or clod of earth unconsidered... All commodities found in a country, which cannot be used in their natural state, should be worked up within the country... Attention should be given to the population, that it may be as large as the country can support...
gold and silver once in the country are under no circumstances to be taken out for any purpose... The inhabitants should make every effort to get along with their domestic products... [Foreign commodities] should be obtained not for gold or silver, but in exchange for other domestic wares... and should be imported in unfinished form, and worked up within the country... Opportunities should be sought night and day for selling the country's
superfluous goods to these foreigners in manufactured form... No
importation should be allowed under any circumstances of which there is a sufficient supply of suitable quality at home.
Nationalism, self-sufficiency and national power were the basic policies proposed.
[12]
[edit] Jean-Baptiste Colbert
Jean-Baptiste Colbert (1619–1683) was Minister of Finance under King
Louis XIV of France. He set up national
guilds to regulate major industries. Silk, linen, tapestry, furniture manufacture and wine were examples of the crafts in which France specialised, all of which came to require membership of a guild to operate in. These remained until the
French revolution. According to Colbert, "It is simply, and solely, the abundance of money within a state [which] makes the difference in its grandeur and power."
[citation needed]
[edit] British enlightenment
Britain had gone through some of its most troubling times through the 17th century, enduring not only political and religious division in the
English Civil War, King
Charles I's execution and the
Cromwellian dictatorship, but also the
plagues and
fires. The monarchy was restored under
Charles II, who had catholic sympathies, but his successor
King James II was swiftly ousted. Invited in his place were Protestant
William of Orange and
Mary, who assented to the
Bill of Rights 1689 ensuring that the
Parliament was dominant in what became known as the
Glorious revolution. The upheaval had seen a number of huge scientific advances, including
Robert Boyle's discovery of the
gas pressure constant (1660) and Sir
Isaac Newton's publication of
Philosophiae Naturalis Principia Mathematica (1687), which described the three laws of motion and his
law of universal gravitation. All these factors spurred the advancement of economic thought. For instance,
Richard Cantillon (1680–1734) consciously imitated Newton's forces of inertia and gravity in the natural world with human reason and market competition in the economic world.
[13] In his
Essay on the Nature of Commerce in General, he argued rational self-interest in a system of freely adjusting markets would lead to order and mutually compatible prices. Unlike the mercantilist thinkers however, wealth was found not in trade but in human
labour. The first person to tie these ideas into a political framework was
John Locke.
[edit] John Locke
John Locke (1632–1704) was born near Bristol and educated in London and Oxford. He is considered one of the most significant philosophers of his era mainly for his critique of
Thomas Hobbes' defense of absolutism in
Leviathan (1651) and the development of
social contract theory. Locke believed that people contracted into society which was bound to protect their rights of property.
[14] He defined property broadly to include people's lives and liberties, as well as their wealth. When people combined their labour with their surroundings, then that created property rights. In his words from his
Second Treatise on Civil Government (1689),
God hath given the world to men in common... Yet every man has a property in his own person. The labour of his body and the work of his hands we may say are properly his. Whatsoever, then, he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.
[15]
Locke was arguing that not only should the government cease interference with people's property (or their "lives, liberties and estates") but also that it should positively work to ensure their protection. His views on price and money were laid out in a letter to a
Member of Parliament in 1691 entitled
Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money (1691). Here Locke argued that the "price of any commodity rises or falls, by the proportion of the number of buyers and sellers", a rule which "holds universally in all things that are to be bought and sold."
[16]
[edit] Dudley North
Dudley North argued that the results of mercantile policy would be undesirable.
Dudley North (1641–1691) was a wealthy merchant and landowner. He worked as an official for the
Treasury and was opposed to most mercantile policy. In his
Discourses upon trade (1691), which he published anonymously, he argued that the assumption of needing a favourable trade balance was wrong. Trade, he argued, benefits both sides, it promotes
specialisation, the
division of labour and produces an increase in wealth for everyone. Regulation of trade interfered with these benefits by reducing the flow of wealth.
[edit] David Hume
David Hume (1711–1776) agreed with North's philosophy and denounced
mercantile assumptions. His contributions were set down in
Political Discourses (1752), later consolidated in his
Essays, Moral, Political, Literary (1777). Added to the fact that it was undesirable to strive for a favourable
balance of trade it is, said Hume, in any case impossible.
Hume held that any surplus of
exports that might be achieved would be paid for by imports of gold and silver. This would increase the
money supply, causing prices to rise. That in turn would cause a decline in exports until the balance with imports is restored.
[edit] Francis Hutcheson
Francis Hutcheson (1694–1746) was teacher to
Adam Smith during 1737-1740,
[17] and is considered to be at the end of a long tradition of thought on economics as "household or family (
οἶκος) management",
[18][19][20] stemming from Xenophon's work
Oeconomicus.
[21][22]
[edit] The circular flow
Main article:
Physiocrats
Similarly disenchanted with regulation on trademarks inspired by mercantilism, a Frenchman name
Vincent de Gournay (1712–1759) is reputed to have asked why it was so hard to
laissez faire, laissez passer (free enterprise, free trade). He was one of the early physiocrats, a word from Greek meaning "government of nature", who held that agriculture was the source of wealth. As historian
David B. Danbom wrote, the Physiocrats "damned cities for their artificiality and praised more natural styles of living. They celebrated farmers."
[23] Over the end of the seventeenth and beginning of the eighteenth century big advances in
natural science and
anatomy were being made, including the discovery of
blood circulation through the human body. This concept was mirrored in the physiocrats' economic theory, with the notion of a
circular flow of income throughout the economy.
François Quesnay (1694–1774) was the court physician to King
Louis XV of France. He believed that trade and industry were not sources of wealth, and instead in his book,
Tableau économique (1758, Economic Table) argued that agricultural surpluses, by flowing through the economy in the form of rent, wages and purchases were the real economic movers. Firstly, said Quesnay, regulation impedes the flow of income throughout all
social classes and therefore economic development. Secondly, taxes on the productive classes, such as
farmers, should be reduced in favour of rises for unproductive classes, such as
landowners, since their luxurious way of life distorts the income flow. David Ricardo later showed that taxes on land are non-transferable to tenants in his
Law of Rent.
Jacques Turgot (1727–1781) was born in Paris and from an old
Norman family. His best known work,
Réflexions sur la formation et la distribution des richesses (1766,
Reflections on the Formation and Distribution of Wealth) developed Quesnay's theory that
land is the only source of
wealth. Turgot viewed society in terms of three classes: the productive agricultural class, the salaried artisan class (
classe stipendice) and the landowning class (
classe disponible). He argued that only the net product of land should be taxed and advocated the complete freedom of
commerce and
industry.
In August 1774, Turgot was appointed to be Minister of Finance and in the space of two years introduced many anti-mercantile and anti-feudal measures supported by the King. A statement of his guiding principles, given to the King were "no
bankruptcy, no
tax increases, no borrowing." Turgot's ultimate wish was to have a single tax on land and abolish all other indirect taxes, but measures he introduced before that were met with overwhelming opposition from landed interests. Two
edicts in particular, one suppressing
corvées (charges from farmers to aristocrats) and another renouncing privileges given to guilds inflamed influential opinion. He was forced from office in 1776.
[edit] Adam Smith and The Wealth of Nations
Adam Smith (1723–1790) is popularly seen as the father of modern political economy. His publication of the
An Inquiry Into the Nature and Causes of the Wealth of Nations in 1776 happened to coincide not only with the
American Revolution, shortly before the Europe wide upheavals of the
French Revolution, but also the dawn of a new
industrial revolution that allowed more wealth to be created on a larger scale than ever before. Smith was a Scottish moral philosopher, whose first book was
The Theory of Moral Sentiments (1759). He argued in it that people's ethical systems develop through personal relations with other individuals, that right and wrong are sensed through others' reactions to one's behaviour. This gained Smith more popularity than his next work,
The Wealth of Nations, which the general public initially ignored.
[24] Yet Smith's
political economic magnum opus was successful in circles that mattered.
[edit] Context
William Pitt, the
Tory Prime Minister in the late 1780s based his tax proposals on Smith's ideas and advocated
free trade as a devout disciple of
The Wealth of Nations.
[25] Smith was appointed a commissioner of
customs and within twenty years Smith had a following of new generation writers who were intent on building the
science of political economy.
[24]
Smith expressed an affinity himself to the opinions of
Edmund Burke, known widely as a political philosopher, a
Member of Parliament.
Burke is the only man I ever knew who thinks on economic subjects exactly as I do without any previous communication having passed between us.
[26]
Burke was an established political economist himself, with his book
Thoughts and Details on Scarcity. He was widely critical of liberal politics, and condemned the
French Revolution which began in 1789. In
Reflections on the Revolution in France (1790) he wrote that the "age of chivalry is dead, that of sophisters, economists and calculators has succeeded, and the glory of Europe is extinguished forever." Smith's contemporary influences included
François Quesnay and
Jacques Turgot whom he met on a stay in Paris, and David Hume, his Scottish compatriot. The times produced a common need among thinkers to explain social upheavals of the
Industrial revolution taking place, and in the seeming chaos without the feudal and monarchical structures of Europe, show there was order still.
[edit] The invisible hand
| "It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."[27] |
| Adam Smith's famous statement on self-interest |
Smith argued for a "
system of natural liberty"
[28] where individual effort was the producer of social good. Smith believed even the selfish within society were kept under restraint and worked for the good of all when acting in a competitive market. Prices are often unrepresentative of the true value of goods and services. Following
John Locke, Smith thought true value of things derived from the amount of labour invested in them.
Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the
division of labour has once thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities. 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.
[29]
When the butchers, the brewers and the bakers acted under the restraint of an open market economy, their pursuit of self-interest, thought Smith, paradoxically drives the process to correct real life
prices to their just values. His classic statement on competition goes as follows.
When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay... cannot be supplied with the quantity which they want... Some of them will be willing to give more. A
competition will begin among them, and the market price will rise... When the quantity brought to market exceeds the effectual
demand, it cannot be all sold to those who are willing to pay the whole value of the
rent, wages and
profit, which must be paid to bring it thither... The market price will sink...
[30]
Smith believed that a market produced what he dubbed the "progress of opulence". This involved a chain of concepts, that the
division of labour is the driver of economic efficiency, yet it is limited to the widening process of markets. Both labour division and market widening requires more intensive
accumulation of capital by the entrepreneurs and leaders of business and industry. The whole system is underpinned by maintaining the security of
property rights.
[edit] Limitations
Smith's vision of a free market economy, based on secure property, capital accumulation, widening markets and a division of labour contrasted with the mercantilist tendency to attempt to "regulate all evil human actions."
[28] Smith believed there were precisely three legitimate functions of government. The third function was...
...erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual or small number of individuals, to erect and maintain... Every system which endeavours... to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it... retards, instead of accelerating, the progress of the society toward real wealth and greatness.
In addition to the necessity of public leadership in certain sectors Smith argued, secondly, that
cartels were undesirable because of their potential to limit production and quality of goods and services.
[31] Thirdly, Smith criticised government support of any kind of
monopoly which always charges the highest price "which can be squeezed out of the buyers".
[32] The existence of
monopoly and the potential for
cartels, which would later form the core of
competition law policy, could distort the benefits of free markets to the advantage of businesses at the expense of
consumer sovereignty.
[edit] Classical political economy
The
classical economists were referred to as a group for the first time by
Karl Marx.
[33] One unifying part of their theories was the
labour theory of value, contrasting to value deriving from a
general equilibrium of supply and demand. These economists had seen the first economic and social transformation brought by the Industrial Revolution: rural depopulation, precariousness, poverty, apparition of a working class.
They wondered about the population growth, because the
demographic transition had begun in Great Britain at that time. They also asked many fundamental questions, about the source of value, the causes of economic growth and the role of money in the economy. They supported a free-market economy, arguing it was a natural system based upon freedom and property. However, these economists were divided and did not make up a unified current of thought.
A notable current within classical economics was
underconsumption theory, as advanced by the
Birmingham School and Malthus in the early 19th century. These argued for government action to mitigate unemployment and economic downturns, and was an intellectual predecessor of what later became
Keynesian economics in the 1930s. Another notable school was
Manchester capitalism, which advocated free trade, against the previous policy of
mercantilism.
[edit] Jeremy Bentham
Main article:
Jeremy Bentham
Jeremy Bentham believed in "the greatest good for the greatest number".
Jeremy Bentham (1748–1832) was perhaps the most radical thinker of his time, and developed the concept of
utilitarianism. Bentham was an
atheist, a
prison reformer,
animal rights activist, believer in
universal suffrage,
free speech,
free trade and
health insurance at a time when few dared to argue for any. He was schooled rigorously from an early age, finishing university and being called to the bar at 18. His first book,
A Fragment on Government (1776) published anonymously was a trenchant critique of
William Blackstone's
Commentaries of the laws of England. This gained wide success until it was found that the young Bentham, and not a revered Professor had penned it. In
The Principles of Morals and Legislation (1791) Bentham set out his theory of utility.
[34]
The aim of
legal policy must be to decrease misery and suffering so far as possible while producing the greatest happiness for the greatest number.
[35] Bentham even designed a comprehensive methodology for the calculation of aggregate happiness in society that a particular law produced, a
felicific calculus.
[36] Society, argued Bentham, is nothing more than the total of individuals,
[37] so that if one aims to produce net social good then one need only to ensure that more pleasure is experienced across the board than pain, regardless of numbers.
For example, a law is proposed to make every bus in the city
wheel chair accessible, but slower moving as a result than its
predecessors because of the
new design. Millions of bus users will therefore experience a small amount of displeasure (or "pain") in increased traffic and journey times, but a minority of people using wheel chairs will experience a huge amount of pleasure at being able to catch public transport, which outweighs the aggregate displeasure of other users.
Interpersonal comparisons of utility were allowed by Bentham, the idea that one person's vast pleasure can count more than many others' pain. Much criticism later showed how this could be twisted, for instance, would the
felicific calculus allow a vastly happy dictator to outweigh the dredging misery of his exploited populus? Despite Bentham's methodology there were severe obstacles in measuring people's happiness.
[edit] Jean-Baptiste Say
Say's law, that supply always equals demand, was unchallenged until the 20th century.
Jean-Baptiste Say (1767–1832) was a Frenchman, born in
Lyon who helped to popularise Adam Smith's work in France.
[38] His book,
A Treatise on Political Economy (1803) contained a brief passage, which later became orthodoxy in political economics until the
Great Depression and known as
Say's Law of markets. Say argued that there could never be a general deficiency of demand or a general glut of commodities in the whole economy. People produce things, said Say, to fulfill their own wants, rather than those of others. Production is therefore not a question of supply, but an indication of producers demanding goods.
Say agreed that a part of the income is saved by the households, but in the long term, savings are invested. Investment and consumption are the two elements of demand, so that production
is demand, so it is impossible for production to outrun demand, or for there to be a "general glut" of supply. Say also argued that money was neutral, because its sole role is to facilitate exchanges: therefore, people demand money only to buy commodities. Say said that "money is a veil".
To sum up these two ideas, Say said "products are exchanged for products". At most, there will be different economic sectors whose demands are not fulfilled. But over time supplies will shift, businesses will retool for different production and the market will correct itself. An example of a "general glut" could be unemployment, in other words, too great a supply of workers, and too few jobs. Say's Law advocates would suggest that this necessarily means there is an excess demand for other products that will correct itself. This remained a foundation of economic theory until the 1930s. Say's Law was first put forward by
James Mill (1773–1836) in English, and was advocated by
David Ricardo,
Henry Thornton[39] and
John Stuart Mill. However two political economists, Thomas Malthus and
Sismondi, were unconvinced.
[edit] Thomas Malthus
Malthus cautioned law makers on the effects of poverty reduction policies.
Main article:
Thomas Malthus (1766–1834) was a
Tory minister in the United Kingdom Parliament who, contrasting to Bentham, believed in strict government abstention from social ills.
[40] Malthus devoted the last chapter of his book
Principles of Political Economy (1820) to rebutting Say's law, and argued that the economy could stagnate with a lack of "effectual demand".
[41]
In other words, wages if less than the total costs of production cannot purchase the total output of industry and that this would cause prices to fall. Price falls decrease incentives to invest, and the spiral could continue indefinitely. Malthus is more notorious however for his earlier work,
An Essay on the Principle of Population. This argued that intervention was impossible because of two factors. "Food is necessary to the existence of man", wrote Malthus. "The passion between the sexes is necessary and will remain nearly in its present state", he added, meaning that the "power of the population is infinitely greater than the power in the Earth to produce subsistence for man."
[42]
Nevertheless growth in population is checked by "misery and vice". Any increase in wages for the masses would cause only a temporary growth in population, which given the constraints in the supply of the Earth's produce would lead to misery, vice and a corresponding readjustment to the original population.
[43] However more labour could mean more economic growth, either one of which was able to be produced by an accumulation of capital.
[edit] David Ricardo
Main article:
David Ricardo (1772–1823) was born in London. By the age of 26, he had become a wealthy stock market trader and bought himself a constituency seat in Ireland to gain a platform in the
British parliament's House of Commons.
[44] Ricardo's best known work is his
Principles of Political Economy and Taxation, which contains his critique of barriers to international trade and a description of the manner the income is distributed in the population. Ricardo made a distinction between the workers, who received a wage fixed to a level at which they can survive, the landowners, who earn a rent, and capitalists, who own capital and receive a profit, a residual part of the income.
[45]
If population grows, it becomes necessary to cultivate additional land, whose fertility is lower than that of already cultivated fields, because of the law of decreasing productivity. Therefore, the cost of the production of the wheat increases, as well as the price of the wheat: The rents increase also, the wages, indexed to inflation (because they must allow workers to survive) too. Profits decrease, until the capitalists can no longer invest. The economy, Ricardo concluded, is bound to tend towards a
steady state.
To postpone the steady state, Ricardo advocates to promote international trade to import wheat at a low price to fight landowners. The
Corn Laws of the UK had been passed in 1815, setting a fluctuating system of tariffs to stabilise the price of
wheat in the domestic market. Ricardo argued that raising tariffs, despite being intended to benefit the incomes of farmers, would merely produce a rise in the prices of rents that went into the pockets of landowners.
[46]
Furthermore, extra labour would be employed leading to an increase in the cost of wages across the board, and therefore reducing exports and profits coming from overseas business. Economics for Ricardo was all about the relationship between the three "factors of production":
land,
labour and
capital. Ricardo demonstrated mathematically that the
gains from trade could outweigh the perceived advantages of protectionist policy. The idea of
comparative advantage suggests that even if one country is inferior at producing all of its goods than another, it may still benefit from opening its borders since the inflow of goods produced more cheaply than at home, produces a gain for domestic consumers.
[47] According then to Ricardo, this concept would lead to a shift in prices, so that eventually England would be producing goods in which its comparative advantages were the highest.
[edit] John Stuart Mill
John Stuart Mill, weaned on the philosophy of Jeremy Bentham, wrote the most authoritative economics text of his time.
John Stuart Mill (1806–1873) was the dominant figure of political economic thought of his time, as well as being a
Member of Parliament for the seat of
Westminster, and a leading political philosopher. Mill was a child prodigy, reading Ancient Greek from the age of 3, and being vigorously schooled by his father
James Mill.
[48] Jeremy Bentham was a close mentor and family friend, and Mill was heavily influenced by
David Ricardo. Mill's textbook, first published in 1848 and titled
Principles of Political Economy was essentially a summary of the economic wisdom of the mid nineteenth century.
[49]
Principles of Political Economy was used as the standard texts by most universities well into the beginning of the twentieth century. On the question of
economic growth Mill tried to find a middle ground between Adam Smith's view of ever expanding opportunities for trade and technological innovation and Thomas Malthus' view of the inherent limits of population. In his fourth book Mill set out a number of possible future outcomes, rather than predicting one in particular. The first followed the Malthusian line that population grew quicker than supplies, leading to falling wages and rising profits.
[50]
The second, per Smith, said if capital accumulated faster than population grew then
real wages would rise. Third, echoing
David Ricardo, should capital accumulate and population increase at the same rate, yet technology stay stable, there would be no change in real wages because supply and demand for labour would be the same. However growing populations would require more land use, increasing food production costs and therefore decreasing profits. The fourth alternative was that technology advanced faster than population and capital stock increased.
[51]
The result would be a prospering economy. Mill felt the third scenario most likely, and he assumed technology advanced would have to end at some point.
[52] But on the prospect of continuing economic growth, Mill was more ambivalent.
I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other's heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress.
[53]
Mill is also credited with being the first person to speak of supply and demand as a relationship rather than mere quantities of goods on markets,
[54] the concept of
opportunity cost and the rejection of the
wage fund doctrine.
[55]
[edit] Capitalism and Marx
Just as the term "mercantilism" had been coined and popularised by its critics, like
Adam Smith, so was the term "capitalism" or
Kapitalismus used by its dissidents, primarily
Karl Marx. Karl Marx (1818–1883) was, and in many ways still remains the pre-eminent socialist economist. His combination of political theory represented in the
Communist Manifesto and the
dialectic theory of history inspired by
Friedrich Hegel provided a revolutionary critique of
capitalism as he saw it in the nineteenth century. The
socialist movement that he joined had emerged in response to the conditions of people in the new industrial era and the classical economics which accompanied it. He wrote his magnum opus
Das Kapital at the
British Museum's library.
[edit] Context
Robert Owen (1771–1858) was one industrialist who determined to improve the conditions of his workers. He bought textile mills in
New Lanark,
Scotland where he forbade children under ten to work, set the workday from 6 a.m. to 7 p.m. and provided evening schools for children when they finished. Such meagre measures were still substantial improvements and his business remained solvent through higher productivity, though his pay rates were lower than the national average.
[56] He published his vision in
The New View of Society (1816) during the passage of the
Factory Acts, but his attempt from 1824 to begin a new utopian community in
New Harmony, Indiana ended in failure. One of Marx's own influences was the French anarchist/socialist
Pierre-Joseph Proudhon. While deeply critical of capitalism and in favour of workers' associations to replace it, he also objected to those contemporary socialists who idolized centralised state-run association. In
System of Economic Contradictions (1846) Proudhon made a wide-ranging critique of capitalism, analysing the contradictory effects of machinery, competition, property, monopoly and other aspects of the economy.
[57][58] Instead of capitalism, he argued for a mutualist system "based upon equality, – in other words, the organisation of labour, which involves the negation of political economy and the end of property." In his book
What is Property? (1840) he argue that property is
theft, a different view than the classical
Mill, who had written that "partial taxation is a mild form of robbery".
[59] However, towards the end of his life, Proudhon modified some of his earlier views. In the posthumously published
Theory of Property, he argued that "property is the only power that can act as a counterweight to the State."
[60] Friedrich Engels, a published radical author, released a book titled
The Condition of the Working Class in England in 1844[61] describing people's positions as "the most unconcealed pinnacle of social misery in our day." After Marx died, it was Engels that completed the second volume of
Das Kapital from Marx's notes.
[edit] Das Kapital
The title page of the first edition of
Capital in
German.
Karl Marx begins
Das Kapital with the concept of commodities. Before capitalist societies, says Marx, the mode of production was based on
slavery (e.g. in
ancient Rome) before moving to
feudal serfdom (e.g. in
mediaeval Europe). As society has advanced, economic bondage has become looser, but the current nexus of labour exchange has produced an equally erratic and unstable situation allowing the conditions for
revolution. People buy and sell their labour in the same way as people buy and sell goods and services. People themselves are disposable
commodities. As he wrote in the
Communist Manifesto,
The history of all hitherto existing society is the history of class struggles. Freeman and slave, patrician and plebeian, lord and serf, guildmaster and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another... The modern bourgeois society that has sprouted from the ruins of feudal society has not done away with class antagonisms. It has but established new classes, new conditions of oppression, new forms of struggle in place of the old ones.
And furthermore from the first page of
Das Kapital,
The wealth of those societies in which the capitalist mode of production prevails, presents itself as an immense accumulation of commodities,
[62] its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.
Marx's use of the word "commodity" is tied into an extensive
metaphysical discussion of the nature of material wealth, how the objects of wealth are perceived and how they can be used. The concept of a commodity contrasts to objects of the natural world. When people mix their labour with an object it becomes a "commodity". In the natural world there are trees,
diamonds,
iron ore and people. In the economic world they become chairs,
rings,
factories and workers. However, says Marx, commodities have a dual nature, a dual value. He distinguishes the
use value of a thing from its
exchange value, which can be entirely different.
[63] The use value of a thing derives from the amount of labour used to produce it, says Marx, following the classical economists in the
labour theory of value. However, Marx did not believe labour only was the source of use value in things. He believed value can derive too from natural goods and refined his definition of use value to "
socially necessary labour time" (the time people need to produce things when they are not lazy or inefficient).
[64] Furthermore, people subjectively inflate the value of things, for instance because there's a
commodity fetish for glimmering diamonds,
[65] and oppressive power relations involved in commodity production. These two factors mean exchange values differ greatly. An oppressive power relation, says Marx applying the use/exchange distinction to labour itself, in work-wage bargains derives from the fact that employers pay their workers less in "exchange value" than the workers produce in "use value". The difference makes up the capitalist's
profit, or in Marx's terminology, "
surplus value".
[66] Therefore, says Marx, capitalism is a system of
exploitation.
Marx's work turned the
labour theory of value, as the classicists used it, on its head. His dark irony goes deeper by asking what is the socially necessary labour time for the production of labour (i.e. working people) itself. Marx answers that this is the bare minimum for people to subsist and to reproduce with skills necessary in the economy.
[67] People are therefore
alienated from both the fruits of production and the means to realise their potential, psychologically, by their oppressed position in the labour market. But the tale told alongside exploitation and alienation is one of
capital accumulation and
economic growth. Employers are constantly under pressure from market competition to drive their workers harder, and at the limits invest in labour displacing technology (e.g. an assembly line packer for a robot). This raises profits and expands growth, but for the sole benefit of those who have private property in these
means of production. The working classes meanwhile face progressive immiseration, having had the product of their labour exploited from them, having been alienated from the tools of production. And having been fired from their jobs for machines, they end unemployed. Marx believed that a
reserve army of the unemployed would grow and grow, fuelling a downward pressure on wages as desperate people accept work for less. But this would produce a deficit of
demand as the people's
power to purchase products lagged. There would be a glut in unsold products, production would be cut back, profits decline until capital accumulation halts in an
economic depression. When the glut clears, the economy again starts to boom before the next cyclical bust begins. With every
boom and bust, with every capitalist crisis, thought Marx, tension and
conflict between the increasingly polarised classes of capitalists and workers heightens. Moreover smaller firms are being gobbled by larger ones in every business cycle, as power is concentrated in the hands of the few and away from the many. Ultimately, led by the
Communist party, Marx envisaged a revolution and the creation of a classless society. How this may work, Marx never suggested. His primary contribution was not in a blue print for how society would be, but a criticism of what he saw it was.
[edit] After Marx
The first volume of
Das Kapital was the only one Marx alone published. The second and third volumes were done with the help of
Friedrich Engels, and Karl Kautsky, who had become a friend of Engels, saw through the publication of volume four.
Marx had begun a tradition of economists who concentrated equally on political affairs. Also in Germany,
Rosa Luxemburg was a member of the
SPD, who later turned towards the
Communist Party because of their stance against the First World War.
Beatrice Webb in England was a socialist, who helped found both the
London School of Economics (LSE) and the
Fabian Society.
[edit] Neoclassical thought
In the 1860s, a revolution took place in economics. The new ideas were that of the
Marginalist school. Writing simultaneously and independently, a Frenchman (
Léon Walras), an Austrian (
Carl Menger) and an Englishman (
Stanley Jevons) were developing the theory, which had some antecedents. Instead of the price of a good or service reflecting the labor that has produced it, it reflects the marginal usefulness (utility) of the last purchase. This meant that in equilibrium, people's preferences determined prices, including, indirectly the price of labor.
This current of thought was not united, and there were three main schools working independently. The
Lausanne school, whose two main representants were Walras and
Vilfredo Pareto, developed the theories of
general equilibrium and
optimality. The main written work of this school was Walras'
Elements of Pure Economics. The
Cambridge school appeared with Jevons'
Theory of Political Economy in 1871. This English school has developed the theories of the partial equilibrium and has insisted on markets' failures. The main representatives were
Alfred Marshall,
Stanley Jevons and
Arthur Pigou. The
Vienna school was made up of Austrian economists Menger,
Eugen von Böhm-Bawerk and
Friedrich von Wieser. They developed the theory of capital and has tried to explain the presence of economic crises. It appeared in 1871 with Menger's
Principles of Economics.
[edit] Marginal utility
Carl Menger (1840–1921), an
Austrian economist stated the basic principle of marginal utility in
Grundsätze der Volkswirtschaftslehre[68] (1871,
Principles of Economics). Consumers act rationally by seeking to maximise satisfaction of all their preferences. People allocate their spending so that the last unit of a commodity bought creates no more than a last unit bought of something else.
Stanley Jevons (1835–1882) was his English counterpart, and worked as tutor and later professor at
Owens College, Manchester and
University College, London. He emphasised in the
Theory of Political Economy (1871) that at the margin, the satisfaction of goods and services decreases. An example of the
theory of diminishing returns is that for every orange one eats, the less pleasure one gets from the last orange (until one stops eating). Then
Léon Walras (1834–1910), again working independently, generalised marginal theory across the economy in
Elements of Pure Economics (1874). Small changes in people's preferences, for instance shifting from beef to mushrooms, would lead to a mushroom price rise, and beef price fall. This stimulates producers to shift production, increasing mushrooming investment, which would increase market supply and a new price equilibrium between the products – e.g. lowering the price of mushrooms to a level between the two first levels. For many products across the economy the same would go,
if one assumes markets are competitive, people choose on self-interest and no cost in shifting production.
Early attempts to explain away the periodical crises of which Marx had spoken were not initially as successful. After finding a statistical correlation of
sunspots and business fluctuations and following the common belief at the time that sunspots had a direct effect on weather and hence agricultural output, Stanley Jevons wrote,
when we know that there is a cause, the variation of the solar activity, which is just of the nature to affect the produce of agriculture, and which does vary in the same period, it becomes almost certain that the two series of phenomena— credit cycles and solar variations—are connected as effect and cause.
[69]
[edit] Mathematical analysis
Alfred Marshall wrote the main alternative textbook to John Stuart Mill of the day,
Principles of Economics (1882)
Vilfredo Pareto (1848–1923) was an Italian economist, best known for developing the concept of an economy that would permit maximizing the utility level of each individual, given the feasible utility level of others from production and exchange. Such a result came to be called "
Pareto efficient". Pareto devised mathematical representations for such a resource allocation, notable in abstracting from institutional arrangements and monetary measures of
wealth or
income distribution.
[70]
Alfred Marshall is also credited with an attempt to put economics on a more mathematical footing. He was the first Professor of Economics at the
University of Cambridge and his work,
Principles of Economics[71] coincided with the transition of the subject from "
political economy" to his favoured term, "
economics". He viewed maths as a way to simplify economic reasoning, though had reservations, revealed in a letter to his student
Arthur Cecil Pigou.
(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in 4, burn 3. This I do often.
[72]
Coming after the marginal revolution, Marshall concentrated on reconciling the classical labour theory of value, which had concentrated on the supply side of the market, with the new marginalist theory that concentrated on the consumer demand side. Marshalls graphical representation is the famous
supply and demand graph, the "Marshallian cross". He insisted it is the intersection of
both supply
and demand that produce an equilibrium of price in a competitive market. Over the long run, argued Marshall, the costs of production and the price of goods and services tend towards the lowest point consistent with continued production.
Arthur Cecil Pigou in
Wealth and Welfare (1920), insisted on the existence of
market failures. Markets are inefficient in case of
economic externalities, and the State must interfere. However, Pigou retained free-market beliefs, and in 1933, in the face of the economic crisis, he explained in
The Theory of Unemployment that the excessive intervention of the state in the labor market was the real cause of massive
unemployment, because the governments had established a minimal wage, which prevented the wages from adjusting automatically. This was to be the focus of attack from Keynes.
[edit] Austrian school
Carl Menger, founder of the Austrian school of economic thought.
[edit] Early Austrian economists
While the end of the nineteenth century and the beginning of the twentieth were dominated increasingly by mathematical analysis, the followers of
Carl Menger, in the tradition of
Eugen von Böhm-Bawerk, followed a different route, advocating the use of deductive logic instead. This group became known as the Austrian School, reflecting the Austrian origin of many of the early adherents.
Thorstein Veblen in 1900, in his
Preconceptions of Economic Science, contrasted neoclassical
marginalists in the tradition of
Alfred Marshall from the philosophies of the Austrian school.
[73][74]
Joseph Alois Schumpeter (1883–1950) was an Austrian economist and political scientist most known for his works on
business cycles and
innovation. He insisted on the role of the entrepreneurs in an economy. In
Business Cycles: A theoretical, historical and statistical analysis of the Capitalist process(1939), Schumpeter made a synthesis of the theories about business cycles. He suggested that those cycles could explain the economic situations. According to Schumpeter, capitalism necessarily goes through long-term cycles, because it is entirely based upon scientific inventions and innovations. A phase of expansion is made possible by innovations, because they bring
productivity gains and encourage entrepreneurs to invest. However, when investors have no more opportunities to invest, the economy goes into recession, several firms collapse, closures and bankruptcy occur. This phase lasts until new innovations bring a
creative destruction process, i.e. they destroy old products, reduce the employment, but they allow the economy to start a new phase of growth, based upon new products and new
factors of production.
[75]
[edit] Ludwig von Mises
Ludwig von Mises (left) and Friedrich von Hayek (right)
Ludwig von Mises (1881–1973) was a central figure in the Austrian school. In his treatise on economics,
Human Action, Mises introduced
praxeology, "The science of human action", as a more general conceptual foundation of the social sciences . Praxeology views economics as a series of voluntary trades that increase the satisfaction of the involved parties. Mises also argued that socialism suffers from an unsolvable
economic calculation problem, which according to him, could only be solved through
free market price mechanisms.
[citation needed]
[edit] Friedrich von Hayek
Mises' outspoken
criticisms of socialism had a large influence on the economic thinking of
Friedrich von Hayek (1899–1992), who, while initially sympathetic to socialism, became one of the leading academic critics of
collectivism in the 20th century.
[76] In echoes of Smith's "system of natural liberty", Hayek argued that the market is a "spontaneous order" and actively disparaged the concept of "
social justice".
[77] Hayek believed that all forms of collectivism (even those theoretically based on voluntary cooperation) could only be maintained by a central authority. In his book,
The Road to Serfdom (1944) and in subsequent works, Hayek claimed that socialism required central economic planning and that such planning in turn would lead towards
totalitarianism. Hayek attributed the birth of civilization to
private property in his book
The Fatal Conceit (1988). According to him,
price signals are the only means of enabling each economic decision maker to communicate
tacit knowledge or
dispersed knowledge to each other, to solve the
economic calculation problem. Along with his contemporary
Gunnar Myrdal, Hayek was awarded the Nobel Prize in 1974.
[edit] Murray Rothbard
Building on the Austrian School's concept of
spontaneous order, support for a
free market in
money production, and condemnation of
central planning,
Murray Rothbard (1926–1995) advocated abolition of
coercive government control of society and the economy.
[78] He considered the
monopoly force of government the greatest danger to liberty and the long-term well-being of the populace, labeling the
state as "the organization of robbery systematized and writ large" and the locus of the most immoral, grasping and unscrupulous individuals in any society.
[79][80][81][82]
[edit] Depression and reconstruction
Alfred Marshall was still working on his last revisions of his
Principles of Economics at the outbreak of the First World War (1914–1918). The new twentieth century's climate of optimism was soon violently dismembered in the trenches of the Western front, as the civilised world tore itself apart. For four years the production of Britain, Germany and France was geared entirely towards the
war economy's industry of death. In 1917 Russia crumbled into revolution led by
Vladimir Lenin's Bolshevik party. They carried Marxist theory as their saviour, and promised a broken country "peace, bread and land" by collectivising the means of production. Also in 1917, the United States of America entered the war on the side of France and Britain, President
Woodrow Wilson carrying the slogan of "making the world safe for democracy". He devised a peace plan of
Fourteen Points. In 1918 Germany launched a spring offensive which failed, and as the allies counter-attacked and more millions were slaughtered, Germany slid into
revolution, its interim government suing for peace on the basis of Wilson's Fourteen Points. Europe lay in ruins, financially, physically, psychologically, and its future with the arrangements of the
Versailles conference in 1919.
John Maynard Keynes was the representative of
Her Majesty's Treasury at the conference and the most vocal critic of its outcome.
[edit] John Maynard Keynes
John Maynard Keynes (1883–1946) was born in Cambridge, educated at
Eton and supervised by both
A. C. Pigou and
Alfred Marshall at
Cambridge University. He began his career as a lecturer, before working in the British government during the Great War, and rose to be the British government's financial representative at the
Versailles conference. His observations were laid out in his book
The Economic Consequences of the Peace[83] (1919) where he documented his outrage at the collapse of the Americans' adherence to the
Fourteen Points[84] and the mood of vindictiveness that prevailed towards Germany.
[85] Keynes quit from the conference and using extensive economic data provided by the conference records, Keynes argued that if the victors forced
war reparations to be paid by the defeated Axis, then a world financial crisis would ensue, leading to a second world war.
[86] Keynes finished his treatise by advocating, first, a reduction in reparation payments by Germany to a realistically manageable level, increased intra-governmental management of continental coal production and a free trade union through the
League of Nations;
[87] second, an arrangement to set off debt repayments between the Allied countries;
[88] third, complete reform of international currency exchange and an international loan fund;
[89] and fourth, a reconciliation of trade relations with Russia and Eastern Europe.
[90]
The book was an enormous success, and though it was criticised for false predictions by a number of people,
[91] without the changes he advocated, Keynes' dark forecasts matched the world's experience through the
Great Depression which ensued in 1929, and the descent into a new outbreak of war in 1939. World War I had been the "war to end all wars", and the absolute failure of the peace settlement generated an even greater determination to not repeat the same mistakes. With the defeat of
fascism, the
Bretton Woods conference was held to establish a new economic order. Keynes was again to play a leading role.
[edit] The General Theory
The title page to Keynes'
General Theory.
During the Great Depression, Keynes had published his most important work,
The General Theory of Employment, Interest, and Money (1936). The depression had been sparked by the
Wall Street Crash of 1929, leading to massive rises in unemployment in the United States, leading to debts being recalled from European borrowers, and an economic domino effect across the world. Orthodox economics called for a tightening of spending, until business confidence and profit levels could be restored. Keynes by contrast, had argued in
A Tract on Monetary Reform (1923) that a variety of factors determined economic activity, and that it was not enough to wait for the long run market equilibrium to restore itself. As Keynes famously remarked,
...this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
[92]
On top of the
supply of money, Keynes identified the
propensity to consume, inducement to invest, the marginal efficiency of capital, liquidity preference and the multiplier effect as variables which determine the level of the economy's output, employment and level of prices. Much of this esoteric terminology was invented by Keynes especially for his
General Theory, though some simple ideas lay behind. Keynes argued that if
savings were being kept away from
investment through
financial markets, total spending falls. Falling spending leads to reduced incomes and unemployment, which reduces savings again. This continues until the desire to save becomes equal to the desire to invest, which means a new "equilibrium" is reached and the spending decline halts. This new "equilibrium" is a depression, where people are investing less, have less to save and less to spend.
Keynes argued that employment depends on total spending, which is composed of consumer spending and business investment in the
private sector. Consumers only spend "passively", or according to their income fluctuations. Businesses, on the other hand, are induced to invest by the expected rate of return on new investments (the benefit) and the rate of interest paid (the cost). So, said Keynes, if business expectations remained the same, and government reduces interest rates (the costs of borrowing), investment would increase, and would have a multiplied effect on total spending.
Interest rates, in turn, depend on the quantity of money and the desire to hold money in bank accounts (as opposed to investing). If not enough money is available to match how much people want to hold, interest rates rise until enough people are put off. So if the quantity of money were increased, while the desire to hold money remained stable, interest rates would fall, leading to increased investment, output and employment. For both these reasons, Keynes therefore advocated low interest rates and easy credit, to combat unemployment.
But Keynes believed in the 1930s, conditions necessitated public sector action. Deficit spending, said Keynes, would kick-start economic activity. This he had advocated in an open letter to U.S. President
Franklin D. Roosevelt in the
New York Times (1933). The
New Deal programme in the U.S. had been well underway by the publication of the
General Theory. It provided conceptual reinforcement for policies already pursued. Keynes also believed in a more egalitarian distribution of income, and taxation on
unearned income arguing that high rates of savings (to which richer folk are prone) are not desirable in a developed economy. Keynes therefore advocated both monetary management and an active fiscal policy.
[edit] Keynesian economics
During the Second World War, Keynes acted as advisor to
HM Treasury again, negotiating major loans from the US. He helped formulate the plans for the
International Monetary Fund, the
World Bank and an
International Trade Organisation[93] at the
Bretton Woods conference, a package designed to stabilise world economy fluctuations that had occurred in the 1920s and create a level trading field across the globe. Keynes passed away little more than a year later, but his ideas had already shaped a new global economic order, and all Western governments followed the Keynesian prescription of deficit spending to avert crises and maintain full employment.
One of Keynes' pupils at Cambridge was
Joan Robinson, who contributed to the notion that
competition is seldom perfect in a market, an indictment of the theory of markets setting prices. In
The Production Function and the Theory of Capital (1953) Robinson tackled what she saw to be some of the circularity in orthodox economics. Neoclassicists assert that a competitive market forces producers to minimise the costs of production. Robinson said that costs of production are merely the prices of inputs, like
capital. Capital goods get their value from the final products.
And if the price of the final products determines the price of capital, then it is, argued Robinson, utterly circular to say that the price of capital determines the price of the final products. Goods cannot be priced until the costs of inputs are determined. This would not matter if everything in the economy happened instantaneously, but in the real world, price setting takes time – goods are priced before they are sold. Since capital cannot be adequately valued in independently measurable units, how can one show that capital earns a return equal to the contribution to production?
Piero Sraffa came to England from
fascist Italy in the 1920s, and worked with Keynes in Cambridge. In 1960 he published a small book called
Production of Commodities by Means of Commodities, which explained how technological relationships are the basis for production of goods and services. Prices result from wage-profit tradeoffs, collective bargaining, labour and management conflict and the intervention of government planning. Like Robinson, Sraffa was showing how the major force for price setting in the economy was not necessarily market adjustments.
[edit] The "American Way"
After World War II, the United States had become the pre-eminent global economic power. Europe and the Soviet Union lay in ruins and the
British Empire was at its end. Until then, American economists had played a minor role. The
institutional economists had been largely critical of the "American Way" of life, especially regarding
conspicuous consumption of the
Roaring Twenties before the
Wall Street Crash of 1929. After the war, however, a more orthodox body of thought took root, reacting against the lucid debating style of Keynes, and re-mathematizing the profession. The orthodox centre was also challenged by a more radical group of scholars based at the University of Chicago. They advocated "liberty" and "freedom", looking back to 19th century-style non-interventionist governments.
[edit] Institutionalism
Thorsten Veblen came from a Norwegian immigrant family in rural mid-western America.
Thorsten Veblen (1857–1929), who came from rural mid-western America and worked at the
University of Chicago, is one of the best known early critics of the "American Way". In
The Theory of the Leisure Class (1899) he scorned
materialistic culture and wealthy people who
conspicuously consumed their riches as a way of demonstrating success and in
The Theory of Business Enterprise (1904) Veblen distinguished production for people to use things and production for pure profit, arguing that the former is often hindered because businesses pursue the latter. Output and technological advance are restricted by business practices and the creation of monopolies. Businesses protect their existing capital investments and employ excessive credit, leading to depressions and increasing military expenditure and war through business control of political power. These two books, focusing on criticism first of
consumerism, and second of profiteering, did not advocate change. However, in 1911, Veblen joined the faculty of the
University of Missouri, where he had support from
Herbert Davenport, the head of the economics department. Veblen remained at
Columbia, Missouri through 1918. In that year, he moved to New York to begin work as an editor of a magazine called
The Dial, and then in 1919, along with
Charles A. Beard,
James Harvey Robinson and
John Dewey, helped found the New School for Social Research (known today as
The New School). He was also part of the
Technical Alliance,
[94] created in 1919 by
Howard Scott. From 1919 through 1926 Veblen continued to write and to be involved in various activities at The New School. During this period he wrote
The Engineers and the Price System (1921).[95]
John R. Commons (1862–1945) also came from mid-Western America. Underlying his ideas, consolidated in
Institutional Economics (1934) was the concept that the economy is a web of relationships between people with diverging interests. There are monopolies, large corporations, labour disputes and fluctuating business cycles. They do however have an interest in resolving these disputes. Government, thought Commons, ought to be the mediator between the conflicting groups. Commons himself devoted much of his time to advisory and mediation work on government boards and industrial commissions.
The
Great Depression was a time of significant upheaval in the States. One of the most original contributions to understanding what had gone wrong came from a
Harvard University lawyer, named
Adolf Berle (1895–1971), who like
John Maynard Keynes had resigned from his diplomatic job at the
Paris Peace Conference, 1919 and was deeply disillusioned by the
Versailles Treaty. In his book with
Gardiner C. Means,
The Modern Corporation and Private Property (1932), he detailed the evolution in the contemporary economy of big business, and argued that those who controlled big firms should be better held to account.
Directors of companies are held to account to the
shareholders of companies, or not, by the rules found in
company law statutes. This might include rights to elect and fire the management, require for regular general meetings, accounting standards, and so on. In 1930s America, the typical company laws (e.g. in
Delaware) did not clearly mandate such rights. Berle argued that the unaccountable directors of companies were therefore apt to funnel the fruits of enterprise profits into their own pockets, as well as manage in their own interests. The ability to do this was supported by the fact that the majority of shareholders in big
public companies were single individuals, with scant means of communication, in short, divided and conquered. Berle served in President
Franklin Delano Roosevelt's administration through the depression, and was a key member of the so-called "
Brain trust" developing many of the
New Deal policies. In 1967, Berle and Means issued a revised edition of their work, in which the preface added a new dimension. It was not only the separation of controllers of companies from the owners as shareholders at stake. They posed the question of what the corporate structure was really meant to achieve.
Stockholders toil not, neither do they spin, to earn [dividends and share price increases]. They are beneficiaries by position only. Justification for their inheritance... can be founded only upon social grounds... that justification turns on the distribution as well as the existence of wealth. Its force exists only in direct ratio to the number of individuals who hold such wealth. Justification for the stockholder's existence thus depends on increasing distribution within the American population. Ideally the stockholder's position will be impregnable only when every American family has its fragment of that position and of the wealth by which the opportunity to develop individuality becomes fully actualized.
[96]
[edit] John Kenneth Galbraith
After the war,
John Kenneth Galbraith (1908–2006) became one of the standard bearers for pro-active government and liberal-democrat politics. In
The Affluent Society (1958), Galbraith argued voters reaching a certain material wealth begin to vote against the common good. He argued that the "
conventional wisdom" of the conservative consensus was not enough to solve the problems of social inequality.
[97] In an age of big business, he argued, it is unrealistic to think of markets of the classical kind. They set prices and use
advertising to create artificial demand for their own products, distorting people's real preferences. Consumer preferences actually come to reflect those of corporations—a "dependence effect"—and the economy as a whole is geared to irrational goals.
[98] In
The New Industrial State Galbraith argued that economic decisions are planned by a private-bureaucracy, a
technostructure of experts who manipulate
marketing and
public relations channels. This hierarchy is self-serving, profits are no longer the prime motivator, and even managers are not in control. Because they are the new planners, corporations detest risk, require steady economic and stable markets. They recruit governments to serve their interests with fiscal and monetary policy, for instance adhering to monetarist policies which enrich money-lenders in the City through increases in interest rates. While the goals of an affluent society and complicit government serve the irrational technostructure, public space is simultaneously impoverished. Galbraith paints the picture of stepping from penthouse villas onto unpaved streets, from landscaped gardens to unkempt public parks. In
Economics and the Public Purpose (1973) Galbraith advocates a "new socialism" as the solution,
nationalising military production and public services such as
health care, introducing disciplined salary and price controls to reduce inequality.
[edit] Paul Samuelson
In contrast to Galbraith's linguistic style, the post-war economics profession began to synthesise much of
Keynes' work with mathematical representations. Introductory university economics courses began to present economic theory as a unified whole in what is referred to as the
neoclassical synthesis. "
Positive economics" became the term created to describe certain trends and "laws" of economics that could be objectively observed and described in a value-free way, separate from "
normative economic" evaluations and judgments. The best selling textbook writer of this generation was
Paul Samuelson (1915–2009). His
Ph.D. dissertation was an attempt to show that mathematical methods could
represent a core of testable economic theory. It was published as
Foundations of Economic Analysis in 1947. Samuelson started with two assumptions. First, people and firms will act to
maximise their self-interested goals. Second, markets tend towards an
equilibrium of prices, where demand matches supply. He extended the mathematics to describe equilibrating behaviour of economic systems, including that of the then new
macroeconomic theory of
John Maynard Keynes. Whilst
Richard Cantillon had imitated
Isaac Newton's mechanical physics of inertia and gravity in competition and the market,
[13] the
physiocrats had copied the body's blood system into circular flow of income models,
William Jevons had found growth cycles to match the periodicity of
sunspots, Samuelson adapted
thermodynamics formulae to economic theory. Reasserting economics as a hard science was being done in the United Kingdom also, and one celebrated "discovery", of
A. W. Phillips, was of a correlative relationship between inflation and unemployment. The workable policy conclusion was that securing full employment could be traded-off against higher inflation. Samuelson incorporated the idea of the
Phillips curve into his work. His introductory textbook
Economics was influential and widely adopted. It became the most successful economics text ever. Paul Samuelson was awarded the new
Nobel Prize in Economics in 1970 for his merging of mathematics and political economy.
[edit] Kenneth Arrow
Main article:
Kenneth Arrow (born 1921) is Paul Samuelson's brother-in-law. His first major work, forming his doctoral dissertation at
Columbia University was
Social Choice and Individual Values (1951), which brought economics into contact with political theory. This gave rise to
social choice theory with the introduction of his "
Possibility Theorem". In his words,
If we exclude the possibility of interpersonal comparisons of utility, then the only methods of passing from individual tastes to social preferences which will be satisfactory and which will be defined for a wide range of sets of individual orderings are either imposed or dictatorial.
[99]
This sparked widespread discussion over how to interpret the different conditions of the theorem and what implications it had for democracy and voting. Most controversial of his four (1963) or five (1950/1951) conditions is the
independence of irrelevant alternatives.
In the 1950s, Arrow and
Gérard Debreu developed the
Arrow–Debreu model of
general equilibria. In 1971 Arrow with
Frank Hahn co-authored
General Competitive Analysis (1971), which reasserted a theory of general equilibrium of prices through the economy. In 1969 the
Swedish Central Bank began awarding a prize in economics, as an analogy to the
Nobel prizes awarded in Chemistry, Physics, Medicine as well as Literature and Peace (though Alfred Nobel never endorsed this in his will). With
John Hicks, Arrow won the
Bank of Sweden prize in 1972, the youngest recipient ever. The year before, US President
Richard Nixon's had declared that "
We are all Keynesians now".
[100] The irony was that this was the beginning of a new revolution in economic thought.
[edit] Monetarism and the Chicago school
The interventionist monetary and fiscal policies that the orthodox post-war economics recommended came under attack in particular by a group of theorists working at the
University of Chicago, which came to be known as the
Chicago School. This more conservative strand of thought reasserted a "
libertarian" view of market activity, that people are best left to themselves, free to choose how to conduct their own affairs.
[edit] Ronald Coase
Ronald Coase (born 1910) is the most prominent economic analyst of law and the 1991
Nobel Prize winner. His first major article,
The Nature of the Firm (1937), argued that the reason for the existence of firms (
companies, partnerships, etc.) is the existence of
transaction costs.
Rational individuals trade through bilateral contracts on open markets until the costs of transactions mean that using corporations to produce things is more cost-effective. His second major article,
The Problem of Social Cost (1960), argued that if we lived in a world without transaction costs, people would bargain with one another to create the same allocation of resources, regardless of the way a court might rule in property disputes. Coase used the example of an old
legal case about
nuisance named
Sturges v Bridgman, where a noisy sweetmaker and a quiet doctor were neighbours and went to court to see who should have to move.
[101] Coase said that regardless of whether the judge ruled that the sweetmaker had to stop using his machinery, or that the doctor had to put up with it, they could strike a mutually beneficial
bargain about who moves house that reaches the same outcome of resource distribution. Only the existence of
transaction costs may prevent this.
[102] So the law ought to pre-empt what
would happen, and be guided by the most
efficient solution. The idea is that law and regulation are not as important or effective at helping people as lawyers and government planners believe.
[103] Coase and others like him wanted a change of approach, to put the burden of proof for positive effects on a government that was intervening in the market, by analysing the costs of action.
[104]
[edit] Milton Friedman
Milton Friedman (1912–2006) stands as one of the most influential economists of the late twentieth century. He won the Nobel Prize in Economics in 1976, among other things, for
A Monetary History of the United States (1963). Friedman argued that the Great Depression had been caused by the
Federal Reserve's policies through the 1920s, and worsened in the 1930s. Friedman argues that laissez-faire government policy is more desirable than government intervention in the economy. Governments should aim for a neutral monetary policy oriented toward long-run
economic growth, by gradual expansion of the money supply. He advocates the
quantity theory of money, that general prices are determined by money. Therefore active monetary (e.g. easy credit) or fiscal (e.g. tax and spend) policy can have unintended negative effects. In
Capitalism and Freedom (1967) Friedman wrote:
There is likely to be a lag between the need for action and government recognition of the need; a further lag between recognition of the need for action and the taking of action; and a still further lag between the action and its effects.
[105]
Friedman was also known for his work on the consumption function, the
permanent income hypothesis (1957), which Friedman himself referred to as his best scientific work.
[106] This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Windfall gains would mostly be saved. Tax reductions likewise, as rational consumers would predict that taxes would have to rise later to balance public finances. Other important contributions include his critique of the
Phillips curve and the concept of the
natural rate of unemployment (1968). This critique associated his name with the insight that a government that brings about higher inflation cannot permanently reduce unemployment by doing so. Unemployment may be temporarily lower, if the inflation is a surprise, but in the long run unemployment will be determined by the frictions and imperfections in the labour market.
[edit] Global times
Main article:
Globalisation
[edit] Amartya Sen
Amartya Sen (born 1933) is a leading development and welfare economist and has expressed considerable skepticism on the validity of neo-classical assumptions. He was highly critical of
rational expectations theory, and devoted his work to development and human rights. He won the
Nobel Prize in Economics in 1998.
[edit] Joseph E. Stiglitz
Joseph Stiglitz (born 1943) Received the Nobel Prize in 2001 for his work in
information economics. He has served as chairman of President Clinton's Council of Economic Advisors and as chief economist for the
World Bank. Stiglitz has taught at many universities, including Columbia, Stanford, Oxford, Manchester, Yale, and MIT. In recent years he has become an outspoken critic of global economic institutions. He is a popular and academic author. In
Making Globalization Work (2007), he offers an account of his perspectives on issues of international economics.
The fundamental problem with the neoclassical model and the corresponding model under market socialism is that they fail to take into account a variety of problems that arise from the absence of perfect information and the costs of acquiring information, as well as the absence or imperfections in certain key risk and capital markets. The absence or imperfection can, in turn, to a large extent be explained by problems of information.
[107]
[edit] Paul Krugman
Paul Krugman (born 1953) is a contemporary economist. His textbook
International Economics (2007) appears on many undergraduate reading lists. Well known as a representative of progressivism, he writes a biweekly column on economics, American
economic policy, and
American politics more generally in the
New York Times. He was awarded the Nobel Prize in Economics in 2008 for his work on
New Trade Theory and
economic geography.
[edit] Contemporary economic thought
[edit] Macroeconomics since the Bretton Woods era
From the 1970s onwards Friedman's monetarist critique of Keynesian macroeconomics formed the starting point for a number of trends in macroeconomic theory opposed to the idea that government intervention can or should stabilise the economy.
[108] Robert Lucas criticized Keynesian thought for its inconsistency with microeconomic theory.
Lucas's critique set the stage for a neoclassical school of macroeconomics,
New Classical economics based on the foundation of classical economics. Lucas also popularized the idea of
rational expectations,
[109] which was used as the basis for several new classical theories including the
Policy Ineffectiveness Proposition.
[110]
The standard model for new classical economics is the
real business cycle theory, which sought to explain observed fluctuations in output and employment in terms of real variables such as changes in technology and tastes. Assuming competitive markets, real business cycle theory implied that cyclical fluctuations are optimal responses to variability in technology and tastes, and that macroeconomic stabilisation policies must reduce welfare.
[111]
Keynesian economics made a comeback among mainstream economists with the advent of
New Keynesian macroeconomics. The central theme of new Keynesianism was the provision of a microeconomic foundation for Keynesian macroeconomics, obtained by identifying minimal deviations from the standard microeconomic assumptions which yield Keynesian macroeconomic conclusions, such as the possibility of significant welfare benefits from macroeconomic stabilization.
[112] George Akerlof's '
menu costs' arguments, showing that, under imperfect competition, small deviations from rationality generate significant (in welfare terms) price stickiness, are good example of this kind of work.
[113]
Economists have combined the methodology of real business cycle theory with theoretical elements, like sticky prices, from new Keynesian theory to produce the
new neoclassical synthesis.
Dynamic stochastic general equilibrium (DSGE) models, large systems of microeconomic equations combined into models of the general economy, are central to this new synthesis. The synthesis dominates present day economics.
[edit] See also
- Articles
- Lists
- ^ Mattick, Paul (2001-07-08). "Who Is the Real Adam Smith?". The New York Times. http://www.nytimes.com/books/01/07/08/reviews/010708.08mattict.html. Retrieved 2008-05-14.
- ^ Hoaas, David J.; Madigan, Lauren J. (1999). "A citation analysis of economists in principles of economics textbooks". The Social Science Journal 36 (3): 525–532. doi:10.1016/S0362-3319(99)00022-1
- ^ Mark Blaug.Economic theory in retrospect. Cambridge University Press. 1997. ISBN 978-0-521-57701-4 p. 34
- ^ David Held, Models of Democracy (Polity, 2006) 3rd Ed., p.11 ff.
- ^ a b Aristotle (350BC) Politics Book II, Part V
- ^ Aristotle (350BC) Politics Book I, Part IX
- ^ Aristotle (350BC) Politics Book I, Part X
- ^ Book I, Part III]
- ^ a b M. M. Austin, Pierre Vidal-Naquet. Economic and Social History of Ancient Greece. University of California Press, 5 Feb 1981. http://books.google.co.uk/books?id=ekqCOGr1_NAC&pg=PA162&lpg=PA162&dq=household+management+-+Ancient+Greek&source=bl&ots=z-PwoYOk53&sig=F--uWoo7imbz7pCrJtHWgUexIRo&hl=en&sa=X&ei=BM6FT5i8OYqY1AXg89ixBw&ved=0CEMQ6AEwBA#v=onepage&q=household%20management%20-%20Ancient%20Greek&f=false. Retrieved 2012-04-11.
- ^ Aristotle (350BC) Politics Book I, Part XI
- ^ a b Mochrie (2005) p.5
- ^ Fusfeld (1994) p.15
- ^ a b Fusfeld (1994) p.21
- ^ Locke (1689) Chapter 9, section 124
- ^ Locke (1689) Chapter 5, sections 26–27.
- ^ Locke (1691) Considerations Part I, Thirdly
- ^ Murray N. Rothbard An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith (1995) Ludwig von Mises Institute Retrievedf 2012-05-16
- ^ Sarah B. Pomeroy, Xénophon - Xenophon, Oeconomicus: a social and historical commentary Clarendon Press, 1994 Retrieved 2012-05-16
- ^ Strong's ConcordancesBiblos & The NAS New Testament Greek Lexicon (Strong's Number: 3624) Bible Study Tools - Retrieved 2012-05-16
- ^ Douglas HarperEtymology online Retrieved 2012-05-16
- ^ M. I. Finley (was Professor of Ancient History and Master of Darwin College at Cambridge University)The Ancient Economy University of California Press, 1 Jan 1989 , Retrieved 2012-05-16
- ^ Edwin Cannan (editor)Adam Smith - Lectures On Justice, Police, Revenue And Arms Kessinger Publishing, 30 Apr 2004 Retrieved 2012-05-16
- ^ Danbom (1997) Rural Development Perspectives, vol. 12, no. 1 p.15 Why Americans Value Rural Life by David B. Danbom
- ^ a b Fusfeld (1994) p.24
- ^ Hague (2004) p.187, 292
- ^ Stephen (1898) p. 8.
- ^ Smith (1776) Book I, Chapter 2, para 2
- ^ a b Smith (1776) p.533
- ^ Smith (1776) Book I, Chapter 5, para 1
- ^ Smith (1776) Book I, Chapter 7, para 9
- ^ Smith (1776) Book I, Chapter 10, para 82
- ^ Smith (1776) Book I, Chapter 7, para 26
- ^ Keynes (1936) Chapter 1, footnote
- ^ Bentham (1791) Chapter I, para I
- ^ Bentham (1791) Chapter II, para I
- ^ Bentham (1791) Chapter IV
- ^ Bentham (1791) Chapter I, para IV
- ^ Fusfeld (1994) p.47
- ^ Thornton (1802) The Paper Credit of Great Britain
- ^ Historical figures – Thomas Malthus (1766–1834), BBC
- ^ "Thomas Robert Malthus, 1766–1834". The History of Economic Thought Website. http://homepage.newschool.edu/het//profiles/malthus.htm. "Malthus denied the validity of Say's Law and argued that there could be a "general glut" of goods. Malthus believed that economic crises were characterized by a general excess supply caused by insufficient consumption."
- ^ "Rationale and Core Principles", The International Society of Malthus
- ^ Who is Thomas Malthus?, ALL About Science
- ^ David Ricardo, Economic History Services
- ^ David Ricardo's Contributions to Economics, The Victorian Web
- ^ "David Ricardo", Library of Economics and Liberties
- ^ David Ricardo, 1772–1823, The History of Economic Thought Website
- ^ John Stuart Mill: Overview, The Internet Encyclopedia of Pholosophy.
- ^ Pressman (2006) p.44
- ^ John Stuart Mill, 1806–1873, The History of Economic Thought: "Happily, there is nothing in the laws of Value which remains for the present or any future writer to clear up; the theory of the subject is complete: the only difficulty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it." (Mill's quote)
- ^ Stanford Encyclopedy of Philosophy – John Stuart Mill section Political Economy
- ^ Pressman (2006) p.45
- ^ Mill (1871) Book 4, Chapter 6
- ^ Stigler (1965) pp. 1–15
- ^ Pressman (2006) p.46
- ^ In 1819 this was 9 shillings, 11 pence; Fusfeld (1994) p.57
- ^ Proudhon (1846) Volume 1
- ^ Proudhon (1846) Volume 2
- ^ Mill (1848) Book V, Chapter II; Interestingly Mill amended his wording from the 3rd edition in 1852, see [1]; see generally, Variations in the Editions of J.S. Mill's Principles of Political Economy, M.A. Ellis, Economic Journal, vol. 16, June 1906, pp. 291–302.
- ^ Copleston, Frederick. Social Philosophy in France, A History of Philosophy, Volume IX, Image/Doubleday, 1994, p. 67
- ^ Engels (1845) Die Lage der arbeitenden Klassen von England in 1844
- ^ Marx (1859) Zur Kritik der Politischen Oekonomie, Berlin, p. 3.
- ^ In Marx's words, "the exchange of commodities is evidently an act characterised by a total abstraction from use value."
- ^ Marx (1867) Volume I, Part I, Chapter 1, para 14. In Marx's words, "The labour time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time."
- ^ Marx (1867) Volume I, Part I, Chapter 1, Section 4, para 123
- ^ Marx (1867) Volume I, Part III, Chapter 9, Section 1
- ^ Marx (1867) Volume I, Part II, Chapter VI, para 10. In Marx's words, "Therefore the labour-time requisite for the production of labour-power reduces itself to that necessary for the production of those means of subsistence; in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of the labourer."
- ^ Menger, Carl (1871) Grundsätze der Volkswirtschaftslehre,full text in html
- ^ Jevons (1878) p.334
- ^ • Alan Kirman (2008). "Pareto, Vilfredo (1848–1923)", Efficiency or ‘Pareto optimality', The New Palgrave Dictionary of Economics. Abstract.
• Pareto (1897). Cours d'économie politique, v. 2.
• Pareto ([1906] 1971). Manual of Political Economy, ch. 6, Mathematical Appendix, sect. 145-52. Translation of French edition from 1927.
- ^ Principles of Economics, by Alfred Marshall, at the Library of Economics and Liberty
- ^ Buchholz (1989) p.151
- ^ Veblen, Thorstein Bunde; "The Preconceptions of Economic Science" Pt III, Quarterly Journal of Economics v14 (1900).
- ^ Colander, David; The Death of Neoclassical Economics.
- ^ Alessandro Roncaglia. The wealth of ideas: a history of economic thought. Cambridge University Press. 2005. ISBN 978-0-521-84337-9. p. 431
- ^ "Biography of F. A. Hayek (1899–1992)". http://mises.org/about/3234. Retrieved 2009-06-26.
- ^ Law, legislation and liberty (1970)
- ^ Free Market Money System by F.A. Hayek
- ^ The Ethics of Liberty, Murray Rothbard
- ^ Hans-Hermann Hoppe. "The Ethics of Liberty". Ludwig von Mises Institute. http://mises.org/rothbard/ethics/hoppeintro.asp.
- ^ Repudiating the National Debt, Murray Rothbard
- ^ To Save Our Economy From Destruction, Murray Rothbard
- ^ Keynes (1919) The Economic Consequences of the Peace at The Library of Economics and Liberty
- ^ Keynes (1919) Chapter III, para 20
- ^ Keynes (1919) Chapter V, para 43
- ^ Keynes (1919) Chapter VI, para 4
- ^ Keynes (1919) Chapter VII, para 7
- ^ Keynes (1919) Chapter VII, para 30
- ^ Keynes (1919) Chapter VII, para 48
- ^ Keynes (1919) Chapter VII, para 58
- ^ e.g. Etienne Mantioux (1946) The Carthaginian Peace, or the Economic Consequences of Mr. Keynes
- ^ Keynes (1923) Chapter 3
- ^ This was not accepted by the United States Congress at the time, but arose later through the General Agreement on Tariffs and Trade of 1947 and the World Trade Organisation of 1994
- ^ Stabile, Donald R. "Veblen and the Political Economy of the Engineer: the radical thinker and engineering leaders came to technocratic ideas at the same time", American Journal of Economics and Sociology (45:1) 1986, 43–44.
- ^ The Engineers and the Price System, 1921.
- ^ Berle (1967) p. xxiii
- ^ Galbraith (1958) Chapter 2; n.b. though Galbraith claimed to coin the phrase "conventional wisdom", the phrase is used several times in Thorstein Veblen's book The Instinct of Workmanship.
- ^ Galbraith (1958) Chapter 11
- ^ Kenneth Arrow, "A Difficulty in the Concept of Social Welfare" (1950).
- ^ In 1971, announcing wage and price controls. This was actually lifted from a comment by Milton Friedman in 1965 which formed a Time article title, Friday, Dec. 31, 1965. See below.
- ^ Sturges v Bridgman (1879) 11 Ch D 852
- ^ Coase (1960) IV, 7
- ^ Coase (1960) V, 9
- ^ Coase (1960) VIII, 23
- ^ Friedman (1967) p.
- ^ "Charlie Rose Show". 2005-12-26.
- ^ Stiglitz (1996) p.5
- ^ Manikw, N. Greg. "A Quick Refresher Course in Macroeconomics." Journal of Economic Literature, Vol. 28, No. 4. (Dec., 1990), pp. 1647.
- ^ Mankiw, 1647–1648.
- ^ Mankiw, 1649.
- ^ Mankiw, 1653.
- ^ Mankiw, 1655.
- ^ Mankiw, 1657.
[edit] References
[edit] Primary sources
- Aquinas, Thomas (1274) Summa Theologica
- Aristotle (c.a. 350 BCE) Nicomachean Ethics
- Aristotle (c.a. 350 BCE) Politics
- Arrow, Kenneth J (1951) Social Choice and Individual Values, 2nd Ed. 1963, Wiley, New York, ISBN 0-300-01364-7
- Arrow, Kenneth J. and Frank Hahn (1971) General Competitive Analysis, Holden-Day, San Francisco, ISBN 0-8162-0275-3
- Bentham, Jeremy (1776) Fragment on Government
- Bentham, Jeremy (1789) An Introduction to the Principles of Morals and Legislation
- Burke, Edmund (1790) Reflections on the Revolution in France
- Burke, Edmund (1795) Thoughts and Details on Scarcity
- Cantillon, Richard (1732) Essay on the Nature of Commerce in General
- Coase, Ronald H. (1937) The Nature of the Firm Economica, Vol.4, Issue 16, pp. 386–405
- Coase, Ronald H. (1960) The Problem of Social Cost (this online version excludes some parts) Journal of Law and Economics, Vol.3, pp. 1–44
- Commons, John R. (1934) Institutional Economics New York: Macmillan
- Engels, Friedrich (1845) Condition of the Working Class in England in 1844
- Friedman, Milton (1953) Essays in Positive Economics: Part I – The Methodology of Positive Economics, University of Chicago
- Galbraith, J.K. (1958) The Affluent Society, 3rd Ed. reprinted 1991, Penguin Books, ISBN 014013610
- Galbraith, J.K. (1967) The New Industrial State
- Galbraith, J.K. (1973) Economics and the Public Purpose
- Hobbes, Thomas (1651) Leviathan
- Hume, David (1777) Essays, Moral, Political, Literary
- Jevons, William (1871) The Theory of Political Economy
- Jevons, William (1878) The Periodicity of Commercial Crises
- Keynes, John Maynard (1919) The Economic Consequences of the Peace
- Keynes, John Maynard (1936) The General Theory of Employment, Interest and Money
- Locke, John (1689) Second Treatise on Civil Government
- Locke, John (1691) Some Considerations on the consequences of the Lowering of Interest and the Raising of the Value of Money
- Markwell, Donald (2006) John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford.
|
- Marshall, Alfred (1890) Principles of Economics
- Marx, Karl (1871) Das Kapital
- Mill, John Stuart (1871) Principles of Political Economy
- Mun, Thomas (1621) A Discourse of Trade from England unto the East Indies
- North, Dudley (1691) Discourses upon trade
- Petty, William (1690) The Political Arithmetick
- Quesnay, François (1758) Tableau économique
- Ricardo, David (1827) Principles of Political Economy and Taxation
- Robinson, Joan (1953) The Production Function and the Theory of Capital
- Robinson, Joan (1962) Economic Philosophy
- Scotus, Duns (1295) Sententiae
- Sen, Amartya (1985) "The Moral Standing of the Market", in Ethics and Economics, ed. Ellen Frankel Paul, Fred D. Miller, Jr and Jeffrey Paul, Oxford, Basil Blackwell, pp. 1–19
- Sen, Amartya (1976–7) "Rational Fools: A Critique of the Behavioural Foundations of Economic Theory", Philosophy and Public Affairs, 6, pp. 317–44
- Sen, Amartya (1987) On Ethics and Economics Oxford, Basil Blackwell
- Sismondi, J.-C.-L. Simonde de (1819, trans.1991) "New Principles of Political Economy: Of Wealth in Its Relation to Population"
- Smith, Adam (1759) The Theory of Moral Sentiments
- Smith, Adam (1776) An Inquiry Into The Wealth of Nations
- Sraffa, Piero (1960) Production of Commodities by Means of Commodities
- Stigler, George J (1965) "The Nature and Role of Originality in Scientific Progress", in Essays in the History of Economics, University of Chicago Press, pp. 1–15
- Stiglitz, Joseph E. (1996) Whither Socialism?
- Thornton, Henry (1802) The Paper Credit of Great Britain
- Turgot, Jacques (1766) Réflexions sur la formation et la distribution des richesses in French and English
- Veblen, Thorsten, The Theory of the Leisure Class: an economic study of institutions (1899)
- Veblen, Thorsten (1904) Theory of Business Enterprise
- von Hörnigk, Philip (1684) Österreich Über Alles, Wenn Sie Nur Will
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[edit] Secondary sources
- Allen, William. "Economics, Economists, and Economic Policy: Modern American Experiences", in History of Political Economy, Volume 9, no. 1, pp. 48–88. Duke Univ Press, 1977. Reprinted in Econ Journal Watch 7[3]: pp 235–274, Sept 2010. [2]
- Blaug, Mark (1997). Economic Theory in Retrospect, 5th ed.. Cambridge University Press. Description & chapter links, pp. vii -xvi.
- _____ (2001). "No History of Ideas, Please, We're Economists", Journal of Economic Perspectives, 15(1), pp. 145–164 (press +).
- Buchholz, Todd G. (1989). New Ideas from Dead Economists, New York, Penguin Group. p. 151
- Cossa, Luigi. (1893). An Introduction to the Study of Political Economy, London and New York: Macmillan [3]
- Danbom, David B. (1997) Why Americans Value Rural Life, Rural Development Perspectives, vol. 12, no. 1, pp. 15–18
- Ekelund, Robert B., Jr. and Robert F. Hébert (2007). A History of Economic Theory and Method. Waveland Press. 5th ed. ISBN `1-57766-486-8.Description.
- Fusfeld, Daniel R. (1994). The Age of the Economist, Harper Collins, 7th Ed. ISBN 0-673-46805-4
- Hague, William (2004). William Pitt the Younger Harper Perennial ISBN 0-00-714720-1
- Heilbroner, Robert (1953) The Worldly Philosophers, Simon & Schuster 7th Ed. 1999, ISBN 0-684-86214-X
- Lee, Frederic S. (2009). A History of Heterodox Economics: Challenging the Mainstream in the Twentieth Century, Routledge. Description.
- Macfie, Alec Lawrence (1955). "The Scottish Tradition in Economic Thought". Econ Journal Watch 6(3): 389–410. Reprinted from Scottish Journal of Political Economy 2(2): 81–103 [4]
- Markwell, Donald (2006). John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford University Press.
- Medema, Steven G., abd Warren J. Samuels, 2003. The History of Economic Thought: A Reader. Routledge. Description & chapter links, pp. vii-ix.
- Mochrie, Robert (2005). Justice in Exchange: The Economic Philosophy of John Duns Scotus
- Nicola, PierCarlo (2000). Mainstream Mathermatical Economics in the 20th Century. Springer. ISBN 978-3-540-67084-1. http://books.google.com/?id=KR0Rbi8o4QQC.
- Nasar, Sylvia, 2011. Grand Pursuit: The Story of Economic Genius, Simon & Schuster. Description and excerpt.
- From The New Palgrave Dictionary of Economics (2008), 2nd Edition. Abstract links for:
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- "United States, economics in (1776–1885)" by Stephen Meardon.
- "United States, economics in (1885–1945)" by Bradley W. Bateman.
- "United States, economics in (1945 to present)" by Roger E. Backhouse.
- "American exceptionalism" by Louise C. Keely.
- Pressman, Steven (2006). Fifty Major Economists, Routledge, ISBN 0-415-36649-6
- Samuelson, Paul A., and William A. Barnett, ed. (2007). Inside the Economist's Mind: Conversations with Eminent Economists, Wiley. Description, contents, and preview.
- Screpanti, Ernesto, Stefano Zamagni, (2005). An Outline of the History of Economic Thought, 2nd ed. Oxford University Press. Description & ch.-preview links, pp. xi-xviii.
- Schumpeter, Joseph (1954) History of Economic Analysis, 1,260 pp. Description. Chapter-preview links for Parts I-V (arrow-page searchable). Routledge Ed. 1994, ISBN 0-415-10892-6
- Spengler, Joseph J., and William R. Allen, ed. (1960). Essays in Economic Thought: Aristotle to Marshall. Rand McNally.
- Spiegel, Henry William (1971) The Growth of Economic Thought, Duke University Press, 3rd Ed. 1991, ISBN 0-8223-0965-3
- Stephen, Leslie (1898),
"Smith, Adam". Dictionary of National Biography. London: Smith, Elder & Co. 1885–1900.
- Stigler, George J. (1965). Essays in the History of Economics. University of Chicago Press.
- Weintraub, E. Roy (1999). "How Should We Write the History of Twentieth-Century Economics?" Oxford Review of Economic Policy, 15(4), pp. 139-152.
- _____ (2002). How Economics Became a Mathematical Science. Duke University Press. Description and preview.
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