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20 Cards in this Set
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Carl Menger 1840 -1921 |
*Value was determined at the margin-by the value of additional unit of commodity. The importance of a good in satisfying needs. *The purpose of economic activity was the satisfaction of human needs. *A good implies 1.a human need, 2.properties that can satisfy a need, 3.knowledge as to how use it to satisfy a need, 4.command over the thing to satisfy a need *Goods may satisfy needs directly (low-order) or indirectly (higher-order) *Diminishing marginal utility - value fell as the quantity increased *Price determined in exchange by values *Competition ensures less indeterminacy *Competition would progressively eliminate monopolies *Most important institution was private property *Legal order had economic origin *All analysis must start with an individual *There is a spontaneous order underlying social phenomena |
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Vilfredo Pareto 1848-1923 |
*Pareto optimality/efficiency - impossible to make anyone better off without making someone else worse off *Pareto improvement - a change that makes at least one person better off without harming anyone else *Prices and rates are necessary for accounting *Capitalism and collectivism would face the same problems *The main difference is in distribution of income *Capitalism owns means of production, socialism distributes as per ethical and social considerations * Compensation test of Hicks and Kaldor *Pareto principle - if everyone prefers A to B, then A should be chosen |
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Knut Wicksell 1851-1926 |
*rate of interest is essentially the price of time (Böhm-Bawerk) *the higher the rate of interest, the more future consumption *Businesses to decide invest short-term with less profit, or long-term with more profit (long-term needs more capital, more expensive because the rates rise) *Rate of interest thus determines the consumption and production pattern *Rising rates - more saving, less investment as more short-term production *Natural rate of interest - when these 2 types of decisions are balanced. Inter-temporal equilibrium *Market/money rate of interest - the rate at which banks lent money *Cumulative process - when market rate falls below the natural rate-prives rising indefinitely as buying and selling happens only with bank lent money. Gold standard due to limit would stop this. *Cycles arise due to changes (inventions, wars) in natural rates. *Problems: in growing economy stable prices deman more credit for more transactions; in rising productivity equalit if money and real rates will make prices fall, etc. |
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Stockholm School Erik Lindahl, Erik Lundberg, Gunnar Myrdal, Bertil Ohlin |
*capital is the value of the expected stream of income *The demand for loans would depend on expectations about the future *Equilibrium between saving and investment is compatible with any rate of investment, if the rate is correctly anticipated *Unexpected changes in prices would disrupt the equilibrium *Analyses based on a situation of full employment *Prices and wages might be very slow to change *Lowering interest rates might lead to prolonged increase in production in unemployment *Open-ended theory with multiple outcomes *Monetary policy and government spending to reduce unemployment |
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Friedrich von Hayek (1899 - 1992) Ludwig von Mises (1881-1973) |
*monetary policy could interfere in credit markets *If market interest rate fell below the natural rate - inflation, affect intertemporal allocation of resources *When the long process of the above ended and rates rose - fall in output, rise in unemployment, as previous long-term investments at low rates now would be unprofitable *Condemned expansionary monetary policy as a means of raising the economic activity as massive credit expansion would eventually result in massive depression *Advocated non-intervention and neutral money policy whereby the rate of interest would be set so as to keep the level of money income constant *Mises argued that socialism was impossible because commercial-mindedness would not exist *Hayek argued that even in market socialism rational calculation was impossible *Economy is never in equilibrium. *Hayek focused on rivalry |
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John Maynard Keynes 1883 - 1946 |
*emphesised the role of expectations *Because the demand for cash balances depended on expectations, it could change anytime *Without changes in money supply - fluctuations in price levels *The evils of falling prices are worse than the evils of either rising prices or changing exchange rates *Opposed going back to gold standard *Economies had to be managed by authorities Low interest rate - rise in investment and fall in savings - raise prices & profits increase production *Rising interest rate -less saving, negative profit, contracted output *Bearishness - the degree to which people were worried about future *Fundamental psychological law - the link between investment and demand - income rises consumption rises by less than the full amount (he called the ratio propensity to consume) *ROI - marginal efficiency of investment *Rise in interest - fall in investment and vice versa *Convention tgat current situation will continue indefinitely unless we have reason to expect a change *Theory of liquidity preference - demand for money depends on interest rate *Liquidity trap - increasing money supply doesn't lower the interest rate *Theory of output and employment - propensity to consume+ marginal efficiency of investment+liquidity preference *Rise in money supply - fall in interest rate - rise in investment (in long-term expectations) - rise in output and employment *Output determined by the demand level irrelevant of the goods and services supply amount *Workers' wage changes would not affect the employment *Economies could get stuck in mass unemployment or underemployment from which they can't escape without help |
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Joseph Alois Schumpete 1883 - 1950 |
*technical progress is the force underlying economic growth *Exhausted opportunities - slower growth and depression until next wave of innovations *Entrepreneur is in the centre of the capitalist development *Successful entrepreneurs attract imitators - imitation eliminates the profits *Business cycles are swarms of imitations eroded by imitators *Capitalism rises living standards , so proletariat will not overthrow it *Capitalism would destroy its own values and hence itself *Capitalist values would give place to desire for security, equality and regulation. |
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Simon Kuznets 1901 - 1985 |
*national income produced - net product of the whole economy *National income received - payments made to those who produced the net product *Military procurement - too little demanded, the war would be prolonged unnecessary, too much demanded - costs would rise without any more being produced |
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Milton Friedman (1912 – 2006) |
*tried to reviveinterest in the quantity theory of money *the main factorexplaining inflation was increases in the quantity of money (the stockof currency in circulation plus the stock of bank deposits) *In the short run, arise in the money supply would raise output, but eventually output would returnto its original level, but the prices wouldn't *the effectsof monetary changes were felt only after a long and unpredictable lag *the stock of money should grow at a constant, known rate *People cared for the real wage rate –the wage adjusted for the purchasing power of money, not money wage rate *there would be nostable trade-off between inflation and unemployment *a single unemploymentrate – the natural rate of unemployment – consistent with a constantinflation rate *Low unemploymentcould be bought only at theprice of an ever-accelerating inflation rate, which is unsustainable *unemployment wouldhave to return to the natural rate *governments could use monetary policy to control the rate of inflation |
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Paul Samuelsson (1915 -2009) |
*economics was centredon a common core that could be applied to a variety of problems *‘operationalism’ - any meaningful concept could be reduced to a set ofoperations – concepts were defined by operations. *an equivalencebetween equilibrium and the maximization of some magnitude *the firm'sequilibrium (chosen position) = protmaximization, consumer's equilibrium = maximization of utility *systems were stable: if they were disturbed, they would return to their equilibrium positions *Pure public goods aregoods that are provided for everyone. Everyone benefits equally. The amount suppliedwill typically be less than the amount that is socially desirable. Everyone benefits,but no one has an incentive to pay. *Similar problemsarise with externalities (e.g. pollution), where oneperson's action causes harm (or possibly benefit) to a third party *Public goods andexternalities - market failure - better allocation of resources is possible. *These concepts justify government intervention. |
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Ronald Coase (1910-2013) |
*‘Coase theorem’ - absence of clearlydefined property rights causing market failures *greater scope for themarket and a more limited role for the state *activities could beorganized in two ways: through the market and by management within a firm *transaction costs explain why firms should exist (why sometransactions are undertaken outside the market) and why the economy is notorganized as one giant firm (a centrally planned economy). *saw the firmas an organization or, as a governance structure *the theory of the firmbecomes a theory about the efficiency of different types ofcontract *the establishing ofproperty rights (a legal question) was crucial to any efficient solutionof externality problems. |
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Robert E. Lucas Jr (1937 - ) |
*‘Lucas critique' - the behaviour of the private sector depends on people's expectations ofwhat the government is going to do *a consumption function estimated under one tax regime will nolonger work when tax policy changes. *macroeconomic modelsought to be based on the assumption that individuals were completely rational *all markets must bemodelled as being in equilibrium, with supply equal to demand. *To assume thatmarkets were not in equilibrium was to assume that people were notbeing fully rational. *modellers shouldassume that agents in their model know the true structure of the model. *people have ‘chosen' to beunemployed, because the wage they would obtain fromworking is not enough to compensate them for the leisure they would lose. *Fluctuations inoutput and employment arise because unanticipated shocks cause people to makemistakes in their estimates of inflation. *systematic changes togovernment policy will have no effect as they will be predictable and discounted in advance. |
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Gary Becker (1930 - 2014) |
*potential criminalsweigh up the gains to be obtained from successful crimes against the potentiallosses they would incur in the event of being caught and convicted *standard problem ofchoice under uncertainty |
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Alfred Marshall (1842-1924) |
*developed the methodof partial-equilibrium analysis - one part of the economy isanalysed on its own. *continuous, gradualchange - ‘Natura non facit saltum' (‘Nature doesnot make jumps’) *Individuals would modify their behaviour inresponse to their environment *income spent on wholesome goods and activities - increase in strength and intelligence, and productivity. If indulged in unhealthy living - neither effciencynor character would improve. *time as progressing through a life cycle *An industry was like a forest – seemed the same,even though every tree in it was changing. *The foundation ofMarshall's economics is the theory of supply and demand. *time is divided into non-calendar periods *market period (shortest) - no timeto produce more than available * short run - firms areable to alter the quantity of unskilled labour. Output can beincreased at increasing unit cost. Supply anddemand determine price. If demand increases, price willrise. *long run - firms havetime to change the skilled labour and machinery. Expansion of outputwill result in falling costs. Increase in demand- output increasing and price falling. *very long period - secular movementsof normal price, caused by the gradual growth of knowledge, or population,or capital, and of the changing conditions of demand and supplyfrom one generation to another’. |
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Thomas Hobbes (1588 – 1679) |
*Leviathan (1651) offended royalists by arguing against the divine right ofkings, and alienated the opponents of monarchy in arguingthat sovereignty must of necessity be absolute. *civil society ispossible only if there is a government to make and enforce laws. *standardsocial-contract theory of sovereignty *sovereignty must beabsolute – it cannot be divided or limited. *To impose limitationson sovereignty would create conflict, ultimatelyresolvable only by war. *in the absence ofrestraints, people will be aggressive towards their neighbours in pursuingtheir own security *the destructivepassions (riches, glory, domination) could be checked bycountervailing passions (the fear of death, the desire to live comfortably, etc.) |
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John Locke (1632 – 1704) |
*‘natural' rate ofinterest determined by the quantity of money in a country relative to thevolume of that country's trade *‘quickness of circulation’: how much money must restconstantly in each man's hands as requisite to the carrying on of trade. *Plenty of money - money would be cheap and commodities dear. *if the quantity ofmoney were lower, prices would be lower and more trade could take place. *if a country has lessmoney (relative to trade) than its neighbours, then either prices must be loweror else goods must remain unsold. *If home prices werelower than foreign prices, the country would lose through paying more for itsimports than it received for its exports. Risk of having workers migrate to countries with higher wages. *utilitarian frameworkfor morality, and a theoretical basis for representative government. |
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Dudley North (1641–91) |
*Those who are most diligent, grow the most crops or produce the most goods willbe wealthy. *It is differences between people that lead to trade. *Those who havetoo much stock will lend it to those who have too little, in returnfor interest. *Those with toomuch land allow others to use it in return for rent. Interest and rentare essentially the same. *if stockand land are plentiful, interest and rent will be low; if they are scarce,interest and rent will be high. *the same interestrate will notbe appropriate for all transactions. Lenders and borrowers shouldbe free to make their own bargains. *Wealth arises not from having money but from‘land at farm,money at interest, or goods in trade’. *a favourable attitudetowards luxuryspending - an incentive to work |
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François Quesnay (1694 – 1774) |
*Trade was essential,but agriculture remained fundamental because it alone yieldednet revenue – a surplus over the necessary costs of production. *agriculture isproductive and other sectors (trade and manufacturing) as sterile. Agriculturalcapital was therefore the key to economic growth. *the circulation ofmoney and goods between the three classes in society (proprietors, farmers andartisans) on the assumption that policies were ideal for agriculturaldevelopment. *twenty-fourconditions to be satissfied *(1) The entire revenue enters into circulation. (2) Peopleare not led by insecurity to hoard money. (3) Taxes do not destroy the nation'srevenue. (4) Farmers have sucient capital to achieve a net revenue(surplus) of at least 100 per cent. (5) There is free external trade in rawproduce. (6) The needs of the state are met only through the prosperity of thenation, not through raising credit from nanciers. (7) People are freeto cultivate their land as they think best. *None of these conditions was satisedand obtaining themwould amount to a very substantial policy agenda. *agriculture ends upwith a financial surplus paid to the proprietors as rent. *The surplus accruingto the proprietors could be taxed (to raise the funds neededto support the market) *proprietors' spending necessary to maintain the annual flow of income and spending. |
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Francis Hutcheson (1694 – 1746) |
*the originator of theScottish Enlightenment *Men were altruistic and cared for their fellows. *there would be noneed for luxury spending till all demands for necessary goods were satisfied *supply-and-demandtheory of value *The phrase ‘divisionof labour' was coined by Hutcheson. |
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David Hume (1711 – 1776) |
*the greatness of astate *The happiness of the state's subjects will beincreased by luxury consumption *the manufacture ofluxury goods provides husbandmen (farmers) with an incentive to work more thanthe minimum amount required to subsist. *the sovereigncan lay claim over the surplus *labour is the basisfor wealth and that labour will be supplied only if people have an incentive todo so *The more labour isemployed beyond mere necessaries, the more powerful is any state *There isno benefit from a greater quantity of money, for priceswill be higher in the same proportion. The only exception is if gold and silver are plentiful. *higher prices willcause manufacturing industries to shift abroad, where costs will belower. Labour will be lost to the state. *inflationcould be beneficial, a fallingmoney supply will have damaging effects on industry. *the best policy wasto keep the money supply continually increasing. *if one wanted toincrease reserves of gold and silver for use in wartime, the right method wasto hoard it, not to spend it. *human nature was the sameat all times |
