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38 Cards in this Set
- Front
- Back
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Where does the word economics come from, and what is it's meaning? |
From the word Oeconomicus, which means management of the household |
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What is natural and unnatural acquisition according to Aristotle? |
Natural: farming, fishing, hunting, etc Unnatural: acquiring goods beyond one's need |
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What is the historical background of Mercantilism? |
- Rise of the Nation State - Decline of feudal institutions due to increase in use of money, increase in exchange within economy and increase in technology - Weakened role of church due to Protestant Reformation - Rise of humanism - Plague (Black Death) reduced population, increased wages |
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What are the main features of Mercantilism? |
- Wealth = gold & silver - Wealth is gained via export - Import raw materials, export finished goods - Nationalism & Militarism - Colonies as supply of resources and as markets - Monopolies - Low wages, large population - Regulations on international trade and technology - Strong central government and taxation - Positive attitude towards merchants |
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Main characters of Mercantilism? |
Thomas Mun - Favourable Balance of Trade - Internal trade does not increase wealth - No food imports
Gerard de Malynes - Exchange Control (Bullionist) - Terms of Trade - Quality regulation
Charles Davenant - Wealth = production of work
Jean Baptiste Colbert - Fixed Sum game - Minister of Finance (France) - Facilitate internal trade - Large population, low wages, child labour
Sir William Petty - See other flashcard |
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What were the main ideas of Petty? |
- Petty was a more systematic mercantilist - Public work to provide employment, criminals -> slaves - Had an idea about the multiplier effect - Value = land and labour - Opportunity costs - Free trade, but import tariffs - Large population, child labour - Neither too much money nor too little, velocity important - Ideas about division of labour |
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Main characters of Physiocrats? |
- François Quesnay (founder of the school) - Robert Jacques Turgot |
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Main ideas of the Physiocrats? |
- Laissez-faire, Laissez-passer - Productive sector: Agriculture - Taxation thus on landowner (since other taxes would anyway eventually be on landowners) - Exists a natural order (Cartesian - Descartes) - Natural order is not state of nature - Circle of wealth in society between farmers, landlords and merchants - Diminishing returns (Turgot) |
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What is the historical background of the Classical School? |
- Scientific Revolution, people didn't accept ancient truths anymore - Industrial Revolution -> increased emphasis on industrial aspect of economic life - Competition instead of government to ensure moderate prices and quality |
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Main ideas of the Classical School? |
- Minimum government intervention - Self-interest - Harmony of interests (that is, following self-interest serves society best) - All economic sources are important - Economic laws (e.g. comparative advantage, diminishing returns, Say's law, Malthusian theory of population, labour theory of value, Ricardian theory of rent) |
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Lasting contributions of the Classical School? |
- Law of diminishing returns - Law of comparative advantage - Notion of consumer sovereignty - Importance of capital accumulation - Market as mechanism for reconciling interests of individuals |
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Who were forerunners of the Classical School? |
Sir Dudley North - Trade is mutually beneficial - We truly want goods and services, not money - Laissez-faire
Richard Cantillon - Entrepreneurs profit as reward for risk
David Hume - Prices adjust for money supply, money supply depends on balance of trade (price-specie flow mechanism) - Free-floating exchange rates - Win-win in trade |
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Adam Smith was influenced by what? |
- General intellectual climate of the Enlightenment - Physiocratic ideas - David Hume |
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Title and main idea of Smith's first book? |
The Theory of Moral Sentiments - Discussion of moral forces in society; ethics are cement of society; moral values based on human feelings |
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What is Adam Smith's most famous book, and which 3 main ideas are developed in there? |
An Inquiry into the Nature and Causes of the Wealth of Nations - Division of Labour - Harmony of Interests & Limited government intervention - Economic Laws of a Competitive Economy |
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What is the idea behind Smith's division of labour? |
- Workers become good at performing specific task - Time savings due to not having to switch from task to task - Increased usability of machines |
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What are Smith's ideas on harmony of interests and limited government intervention? |
- Invisible hand ensures that self-interested behaviour leads to socially optimal outcomes (efficient allocation) - Capital accumulates because people can earn profits and can save -> economic growth - Three roles of government, (1) protect society from foreign attacks, (2) establish administration of justice, (3) maintain public works & institutions that entrepreneurs cannot do properly - Taxes okay in order to protect domestic industry |
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What are Smith's Economic Laws of a Competitive Economy? |
Value - Exchange value - Primitive economy: Labour cost theory of value - Advanced economy: value depends on wages, rent and profit - Natural (long-run) prices vs market (short run) prices - Difference real vs nominal prices
Wages - Wages fund theory - Efficiency wages - Compensation wage differentials (e.g. cost of acquiring skills)
Economic Development - Division of labour -> capital accumulation -> increased production / national output -> increase in wealth
- Competition lowers profit - Regarding wealth, money is not so important, rather exchange medium
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What's the title of Malthus' publication on population and it's three main propositions? |
Essay on the Principle of Population as it Affects the Future Improvement of Society
Three propositions: - Population cannot increase without food - Population invariably increases if food is available - The superior power of population cannot be checked without producing misery or vice
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What are Malthus' ideas on food and population? |
- Food increases arithmetically, limited by land and diminishing returns - Population increases geometrically
Limits on population - Preventive checks (later marriages, abstinence, abortion (-> vulgarity); -> reduce birthrates) - Positive checks (disease, famine; -> increase death rates) - Wars |
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What are Malthus' ideas on population and wages? |
Population and wages - Wages increase above subsistence -> population increases -> wages fall (and vice versa) - Wages will be at subsistence level in the long run (variant on Iron Law of Wages) - Later ideas: industrialization can improve living standard even of the poor |
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What were Malthus' more economic ideas? |
Agrarian - Opposed import of corn into Britain, favoured corn laws (-> tariffs) - Cheap corn encourages excessive population growth - 'Poor laws' also encourage excessive population growth
Theory of "Gluts" |
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What is Malthus' theory of gluts? |
Two ways to spend income - Consumption - Capital accumulation (-> savings = investment)
Malthus disagrees with Say's law (=gluts don't exist): -> Land owners/capitalists hire workers -> Total product rises -> Total income of workers is constant (hired workers go from unproductive employment to productive employement, wages stay at subsistence level) -> Thus, workers can't buy additional product -> Capitalists don't buy all of the increased product (prefer to save and invest, leading to even more goods) -> Results in general glut (=excess supply) Therefore, unproductive consumption important, else economy stagnates. |
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What were the five main contributions of Ricardo? |
- The Currency Question - Theory of Diminishing Returns - Theory of Exchange Value and Relative Prices - Distribution of Income - Law of Comparative Advantage |
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What did Ricardo say regarding the currency question? |
- Increase gold price results from quantity theory of money (excess money supply) - Problem was low value of pound sterling, not high price of gold - Gold standard to solve the problem |
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What was Ricardo's theory of Diminishing Returns? |
- Value of farm produce depends on required labour per output unit on least productive land - More productive land leads to surplus for landowner (rent) - Rent also due to more intensive cultivation of land, for diminishing returns make output on least productive land lower |
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What was Ricardo's theory of Exchange Value and Relative Prices? |
Exchange Value - Use value requirement for having exchange value - Exchange value depends on scarcity and labour costs - Higher price for a product if above average capital invested and vice versa - Also influenced by labour quality
Relative prices - Market prices firstly based on natural price (mainly labour costs) - Second, influenced by demand and supply (but only in short run) |
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What were Ricardo's ideas of the Distribution of Income? |
Wages - Natural price of labour depends on price of basic necessities, market price again supply and demand - Iron Law of Wages: worker gets minimum wage in long-run
Profits - Profits and wages inversely correlated - Long run: not enough food production for population, profit rates fall, accumulation of capital ceases -> stationary state
Rents - Rise, because growing population -> more intensive cultivation (Theory of Diminishing Returns) |
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What is Ricardo's idea on comparative advantage? |
Trade is mutually beneficial, even if one country is more efficient in all production sectors |
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What are some policy ideas of Ricardo? |
- Wages should not be regulated - Tax on rent only affects landlords - Opposed corn-laws (as opposed to Malthus' view) |
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What were Bentham's relevant ideas? |
- Utilitarianism; greatest happiness for greatest number of people - Diminishing Marginal Utility - Marginal Utility serves as a base for later Rational Choice theory |
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Implications of Bentham's utilitarianism for policy? |
- Government intervention justified if it meets utilitarian condition - So laissez-faire not by definition good - Security (of the rich) vs inequality, inequality eventually less important |
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What were the criticisms on Bentham? |
Economical: is the use of money as a measurement justified?
Philosophical/ethical: hedonistic view of human behaviour (maximizing pleasure and minimizing pain) is disputed |
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What were the main ideas of Say? (Classical School) |
Value of Theory, Costs of Monopoly and Entrepreneurship - Monopolies create deadweight losses - Monopolies use scarce resources to protect their position
Say's Law of Markets - General overproduction (gluts) is impossible - Widely accepted, which resulted in no interest for studying business cycles until Keynes |
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What were the ideas of Senior? (Classical School) |
- Positive economics (economics should not be normative / use value judgements) - Four principles for integrated economic theory; of (1) utility maximization, (2) population, (3) capital accumulation, (4) diminishing returns - Abstinence: sacrifices undertaken by capitalists by postponing consumption - Services increase wealth (as opposed to Smith, who said they were unproductive) |
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What were Mill's ideas about production? |
- Aggregate amount of capital limits industry size - Increase in capital -> increase in employment - Increase in capital depends on surplus products (profit) and disposition to save - Short-run diminishing returns to scale |
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What were Mill's ideas about distribution, wages fund and exchange? |
- Failed to recognize the interconnectedness of production and sitribution - Disputed universal economic laws
- Government cannot increase total wage payments (higher wages -> more unemployment) - Investing in education justified by higher wages later
- Value of commodity depends on power to purchase other goods - Three types of goods; perfectly elastic, perfectly inelastic and relatively elastic |
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What were Mill's ideas about the law of international value, dynamics of the economy and the government? |
- Terms of international trade depend on elasticity of demand for products - Reciprocal demand (supply of goods for export can be seen as demand for imports)
- Progress of society -> diminish minimum acceptable profit rate -> average rate of profit declines, but no gluts - Final result: stationary state
- Government should do the things that are not profitable for individuals to undertake, but do serve general interest |
