Lecture 12-A (Econtwo)

8/21/2019 Lecture 12-A (Econtwo)

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HISTORY OFECONOMIC THOUGHT

Prepared by:

MARIA FRANCESCA TOMALIWAN

De La Salle Unier!i"y

12- A

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HISTORY OF

ECONOMIC THOUGHT

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OVERVIEW

i. Mercantilism (1500-1700s)

ii. Classical School (1700s- 1850s)iii. Socialism/ Marxism (1800s-1900s)

iv. eoclassical School (18!0s- "resent)

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#h$ st%&$ the histor$ o' economic

tho%ht

*olitical econom$ or economics as a social science +he c%m%lative vie, o' evol%tion a "roressive

movement to,ar&s a more "er'ect o' %n&erstan&in

+he com"etitive vie, &i''erent conce"t%al'o%n&ations ao%t similar economic realities

+he context%al vie, economic theories &etermine&

$ the historical national an& international

acro%n&

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MCA+A34SM Mer%an"ili!& 1!th-18th cent%ries

+he 'irst &ominant school in a "erio& o' ca"italistemerence

+he State or the soverein sho%l& acc%m%late ,ealth

es"eciall$ mone$ ("recio%s metals)

+he alance o' tra&e sho%l& e e"t "ositive

+he state sho%l& %se leislation an& "rotective "olic$

to a%ment the co%ntr$s ,ealth

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+6 C3ASS4CA3 SC63 *erio& o' the extension o' the 4n&%strial evol%tion

#ell- no,n economists

A&am Smith (172-1790)

:avi& icar&o (1772-182)

+homas oert Malth%s (17!!-18;) <ohn St%art Mill (180!-187)

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Ada& S&i"'

• Wrote « The Wealth of Nations » (177!)

• Famous concept: the invisible hand

• Known as «father of modern economics »Indiid(al !el)*in"ere!" as the main motivation

= It is not from the benevolence of the butcher, thebrewer, or the baker, that we epect our dinner, but fromtheir re!ard to their own interest" »

Ao%t the e%+n+&i% a,en"« #$ preferrin! the support of domestic to that of

forei!n industr$, he intends onl$ his own securit$% andb$ directin! that industr$ in such a manner as its

produce ma$ be of the !reatest value, he intends onl$ his

own !ain, and he is in this, as in man$ other cases, ledb$ an invisible hand to promote an end which was no part of his intention" »

A %ri"i%i!& +) !"a"e in"eren"i+n« Nor is it alwa$s the worse for the societ$ that it was

no part of it" #$ pursuin! his own interest he fre&uentl$ promotes that of the societ$ more effectuall$ than whenhe reall$ intends to promote it" »

+6 C3ASS4CA3 SC63

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+6 C3ASS4CA3 SC63

Daid Ri%ard+

• Wrote « 'n the principles of political

econom$ and taation» (1817)

• Famous concept: (omparative

)dvanta!e

C+(n"rie! ,ain )r+& "rade by "radin,,++d! in -'i%' "'ey 'ae a%+&para"ie adan"a,e.

= (omparative advanta!e refers to the abilit$ of a part$ to produce a particular !ood or service at a

lower opportunit$ cost over another" *ven if onecountr$ is more efficient in the production of all !oods +absolute advanta!e in all !oods than theother, both countries will still !ain b$ tradin!with each other, as lon! as the$ have differentrelative efficiencies-"

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+6 C3ASS4CA3 SC63

T'+&a! R+ber" Mal"'(!

• Wrote « )n *ssa$ on the .rinciple of

.opulation» (1798)• Famous concept: /althusian

population trap

On b++&in, p+p(la"i+n= The power of population is so superior to the

power of the earth to produce subsistence for man,that premature death must in some shape or othervisit the human race0- 1ice, war and epidemics

will probabl$ control population, but 23houldsuccess be still incomplete, !i!antic inevitable famine stalks in the rear, and with one mi!ht$blow levels the population with the food of theworld"- »

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+6 C3ASS4CA3 SC63

/+'n S"(ar" Mill

• Wrote -4tilitarianism- 5678

• Famous concept: 4tilitarianism, happiness

De)ini"i+n: "'e e"'i%al d+%"rine "'a" "'e &+ral -+r"'

+) an a%"i+n i! !+lely de"er&ined by i"! %+n"rib("i+n "+

+erall ("ili"y0 de)ined a! 'appine!!0 and n+" +n

reli,i+(! ba!i!.

9The sole end for which mankind are warranted,individuall$ or collectivel$, in interferin! with thelibert$ of action of an$ of their number, is self- protection" That the onl$ purpose for which power

can be ri!htfull$ eercised over an$ member of acivilied communit$, a!ainst his will, is to preventharm to others" ;e cannot ri!htfull$ be compelled todo or forbear because it will be better for him to do so,because it will make him happier, because, in theopinion of others, to do so would be wise, or even

ri!ht"""The onl$ part of the conduct of an$one, forwhich he is amenable to societ$, is that which concernsothers" In the part which merel$ concerns himself, hisindependence is, of ri!ht, absolute" 'ver himself, overhis own bod$ and mind, the individual is soverei!n"-

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SC4A34SM/ MA>4SM Criti?%e o' the classical school

#ell- no,n economists

@arl Marx (1818-188)

al%e an& s%r"l%s val%e a theor$ o' ex"loitation

S%r"l%s val%e "ro&%ce& $ laor as the sinle so%rce o'

non-,ae incomes ("ro'it interest rent)

Ballin rate o' "ro'it the main ten&enc$ an& co%nter-

ten&encies

conomic crises as the ex"ression an& the tem"orar$sol%tion o' internal contra&ictions o' the s$stem

+he ca"italist mo&e o' "ro&%ction con&emne& to

event%all$ &isa""ear 11



SC4A34SM/ MA>4SM

1arl Mar2

• Wrote «(ommunist /anifesto-

+56<6 and 2=as Kapital- +567>

• Famous concept: 3ocialism

On !+%iali!& a! a perpe"(al %'an,e

=+he o%reoisie cannot exist ,itho%tconstantl$ revol%tioniin the instr%ments o'"ro&%ction an& there$ the relations o'"ro&%ction an& ,ith them the ,hole relationso' societ$. D= Constant revol%tioniin o' "ro&%ction

%ninterr%"te& &ist%rance o' all socialcon&itions everlastin %ncertaint$ an&aitation &istin%ish the o%reois e"och 'romall earlier ones. All 'ixe& 'ast 'roen relations,ith their train o' ancient an& venerale

"reE%&ices an& o"inions are s,e"t a,a$ allne,-'orme& ones ecome anti?%ate& e'orethe$ can ossi'$. D (Mani'esto 18;8)

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-C3ASS4CA3 SC63 #ell- no,n economists

Al're& Marshall (18;2-192;)

= eoclassical D a critical term intro&%ce& $ elen

(1900) to stress the &is"%tale contin%ities ,ith the

classics %t a ?%estionale lael tain into acco%nt

the im"ortant reas ,ith the classics

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-C3ASS4CA3 SC63

Al)red Mar!'all• Wrote « .rinciples of economics-

+56?@

•

Famous concepts: 3uppl$ anddemand, /arshallian (ross and

/ar!inalism

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Marshallian conomics

+he = "artial e?%iliri%m D metho& isolatin an

aent or in&%str$ anal$in its ehavior %n&er theceteris paribus cla%se an& allo,in ra&%all$ 'ixe&elements o' the environment to chane

S%""l$ an& &eman& c%rves the marshallian cross&etermination o' e?%iliri%m "rice an& ?%antit$

4ncreasin or &ecreasin ret%rns to scale

A &e'ense o' 'ree entre"rise %t a&mission o' a

limite& state intervention 'or "romotin social,el'are

-C3ASS4CA3 SC63

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Marshallian cross

-C3ASS4CA3 SC63

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Lecture 12-A (Econtwo)