Transcript Economic Theorists

Economic Theorists
Beyond Smith and Marx
Sources
Wiley Economics Focus
Father of Classical Economics
• Adam Smith -1723-1790
– free markets provide
the greatest good to
the greatest number of
people.
– “invisible hand”
– Inquiry into the Nature
and Causes of the
Wealth of Nations
– Theory of Moral
Sentiments
Classical Economists
• David Ricardo
1772-1823
• Labor theory of Value
• Theory of rent
• Comparative
advantage-free trade
• The Principles of
Political Economy
• By far the greatest part of those goods
which are the objects of desire, are
procured by labour; and they may be
multiplied, not in one country alone, but in
many, almost without any assignable limit,
if we are disposed to bestow the labour
necessary to obtain them.
Thomas Robert Malthus1766-1834
• Food increases
arithmetically,
populations increase
geometrically
• Populations studies
• An Essay on
Population
• While food production tends to increase arithmetically,
population tends to increase naturally at a (faster)
geometric rate, Malthus argued that it is no surprise that
people thus choose to reduce (or “check”) population
growth. People can increase food production, Malthus
thought, only by slow, difficult methods such as
reclaiming unused land or intensive farming; but they
can check population growth more effectively by
marrying late, using contraceptives, emigrating, or, in
more extreme circumstances, resorting to reduced
health care, tolerating vicious social diseases or
impoverished living conditions, warfare, or even
infanticide. Malthus was fascinated not with the
inevitability of human demise, but with why humans do
not die off in the face of such overwhelming odds.
Jean-Baptiste Say 1767-1832
• Say’s Law
•
"production of commodities
creates, and is the one and
universal cause which creates, a
market for the commodities
produced."
• It is worthwhile to remark that a product is no sooner
created than it, from that instant, affords a market for
other products to the full extent of its own value. When
the producer has put the finishing hand to his product, he
is most anxious to sell it immediately, lest its value
should diminish in his hands. Nor is he less anxious to
dispose of the money he may get for it; for the value of
money is also perishable. But the only way of getting rid
of money is in the purchase of some product or other.
Thus the mere circumstance of creation of one product
immediately opens a vent for other products. (J.B. Say,
1803
John Stuart Mill 1806-1873
• Utilitarianism
• opportunity cost,
• comparative
advantage
• On Liberty
• Actions are right in proportion as they tend
to promote happiness; wrong as they tend
to produce the reverse of happiness. By
happiness is intended pleasure and the
absence of pain.
• the sole end for which mankind are
warranted, individually or collectively, in
interfering with the liberty of action of any
of their number, is self-protection.”
Industrial Revolution poses a challenge
to Classical Economics
Marginalists
• In addition to the
costs of production
setting prices,
demand plays a role
• supply and demand
models
• marginal choices
• Alfred Marshall (1842-1924)
• Principles of Economics
Marxism
• Karl Marx – 1818-1883
• capitalism will ultimately
destroy itself and be
succeeded by a world without
private property.
• The Communist Manifesto
• Das Kapital
F.A. Hayek (1899-1992)
• Socialism will fail.
– planners will never
have perfect info.
– leads to totalitarianism
• The Road to Serfdom
• Austrian School
Great Depression is cataclysmic for
Classical Economics
John Maynard Keynes
• General Theory of
Employment, Interest,
and Money
• Recessions may not be
self-correcting
• Government spending
can help to end a
recession
• free markets cannot be
counted upon to provide
full employment
Keynesian Economics
Stagflation of the 1970s
• Reaction to Keynesianism
Neoclassic Economics
“invisible hand” free markets will always yield the best outcomes
• monetarism
• rational expectations theory
• supply-side economics
Monetarism
• return to free markets
• emphasizes the role
of monetary policy
– (how much money
supplied)
• Chicago School
– laissez-faire
– deregulation
• Milton Friedman 1912-2006
Rational Expectations Theory
• the market's ability to • buyer’s predictions
anticipate government
influence price
policy actions limits
– “efficient markets”
their effectiveness.
– random walk theory
Supply-side Economics
• Back to Smith’s ideal
of production
bettering society
• Incentives to
producers to promote
the economy
• changes in tax rates
exert an impact on
total output
Important Contemporary
Economists
• Paul Krugman
• Jeffrey Sachs
• Thomas Sowell
“heterodox economics”
•behavioral economics,
•complexity economics,
•evolutionary economics,
•experimental economics,
•neuroeconomics
blah, blah, blah. . .