## Metaveri Başlık: **A short history of economic thought** Yazar: *Bo Sandelin, Hans-Michael Trautwein, Richard Wundrak* Kategori: #books ## Altı Çizilenler - Aristotle used a distinction that can also be found more than 2,000 years later in the classical economists and especially in Marx, namely the distinction between value in use and value in exchange. (Page 6) - The same idea returned in neoclassical thought at the end of the nineteenth century, in the concept of diminishing marginal utility. (Page 6) - We may summarize economic thought from the ancient Greeks to the scholastics by stating that it is mostly normative, about ethics and justice rather than about the causes and effects of the economic phenomena in question. (Page 8) - Another goal is wealth, especially the wealth of the sovereign and the commercial elite. (Page 9) - What role should the government have in the economy? Mercantilist thought implies that the economy should be governed in such a way as to strengthen the power of the state relative to other nations. (Page 9) - he view of money was closely bound up with the protection of domestic production. Mercantilist authors were generally aware of the main elements of what is nowadays known as the quantity theory of money. (Page 10) - As it was considered more important to sell than to buy, mercantilism is sometimes said to be characterized by a ‘fear of goods’. (Page 10) - Trade is desirable in the opinion of mercantilism, especially trade with other countries. (Page 10) - Agriculture had a central position in physiocratic thought. (Page 12) - he bad laws should be abolished and the natural order should be restored. Private ownership was seen as an integral part of the natural order, required to encourage the work necessary for the prosperity of society. (Page 12) - The physiocrats believed in a natural order of nature and society. (Page 12) - Quesnay’s Tableau économique is probably the best known heritage left by the physiocrats. The table, published in several versions, has been regarded as a forerunner of Marx’s schemes of reproduction, input–output analysis, modern national accounting systems, multiplier analysis and general equilibrium analysis. (Page 13) - Most classical economists argued that the system of markets is a selfstabilizing mechanism of distribution that works efficiently without much government intervention. (Page 15) - Some characteristics are common to most classical economists. One is the interest in growth and development, which they usually thought would culminate in a stationary state, in which the economy would just reproduce itself – ‘zero growth’ in modern terms. Another characteristic is the concentration on the cost of production as the main determinant of prices. A third characteristic is the concern about the distribution of income between labour, land and capital in the form of wages, rents and profits. Combining all three characteristics, the classical economists attempted to provide a consistent explanation of the changing relations between income distribution and prices in the course of economic development. (Page 15) - In the theory of value, Smith and other classical economists introduced a distinction that dates back to Aristotle, but has been abandoned by modern price theory. (Page 23) - Second, Say is mostly remembered for Say’s law which holds that, as soon as a good has been produced, it offers a market for other goods corresponding to its whole value. The underlying argument is that all production provides income for the production factors that will be spent in the markets. As a simple slogan, Say’s law is often formulated as ‘supply creates its own demand’. (Page 25) - At least two things may be said about Say. First, he has sometimes been regarded as a pioneer of the subjective theory of value that later on came into full bloom with the neoclassical economists. (Page 25) - Ricardo hinted at a complication that later came to play an important role in Marx’s struggle with the theory of value. When, in the production of various goods, the relative inputs of immediate labour and indirect labour (real capital) differ, the relative market prices of those goods will diverge from the relation between the total labour inputs in their production. (Page 29) - Ricardo regarded free international trade as highly beneficial for a country. (Page 31) - He included new elements in his Principles, such as the concept of opportunity costs and a refined abstinence theory of interest, that were not fully consistent with the cornerstones of the Ricardian doctrine. (Page 33) - Marginalism, utility and economics are indeed three terms that help to show the main parallels and differences between classical and neoclassical economic thinking. (Page 40) - The neoclassical approach in a broad sense still dominates within practical economic analysis. In the realms of high theory, traditional neoclassical economics has faced strong challenges from game theory, behavioural economics and other new developments in recent decades. (Page 42) - All this explains the transition from political economy to Economics as the name of the discipline, present already in Jevons (1879) and fully clear in Marshall (1890). (Page 42) - Throughout the book von Thünen applied the principle that profit is maximized when resources are employed to the extent that the cost of the last unit of a resource equals the value of its contribution to output. This typical application of the marginal principle is found also in modern textbooks. Von Thünen used mathematics in a large part of his analysis, and he is often considered to be the first economist who used calculus. The derivatives in a mathematicaleconomic analysis can often be interpreted as marginal concepts. (Page 43) - Gossen’s name has come down to posterity in two of his principles, which are called Gossen’s first and second law. Gossen’s first law is a version of what is now called the law of diminishing marginal utility, which means that the larger quantity you have of a good, say bread, the less utility or enjoyment you would derive from an additional loaf of bread. Gossen’s second law is derived from the first law and the assumption that, due to limited means of payment, the need of a good is not completely saturated. (Page 45) - Menger differed from Jevons and Walras insofar as he presented his marginalist ideas without mathematical formulas or diagrams. (Page 49) - With this he became the founder of the Austrian version of the neoclassical school. Representatives of the modern neo-Austrian school are reluctant to classify Menger as a neoclassicist (see Chapter 7); but he clearly contributed to the rise of neoclassical economics by inspiring leading thinkers in the later generations. (Page 49) - In sum, we can say that Jevons emphasized utility in his theoretical work, but that labour and production were not completely neglected. (Page 49) - Walras differed from Jevons and Menger in the sense that he developed the idea of a general equilibrium of supply and demand in all markets that can be consistently captured by a system of equations. (Page 50) - He argued that research should concentrate on developing pure economics by way of deducing ‘exact economic laws’ from assumptions about human behaviour and about predetermined data. (Page 50) - In Menger we find also elements that gained prominence in various streams of economic thinking only much later. He emphasised the role of information in the economy, and he analysed the time-structure of production, which became important for the development of the Austrian theory of capital (discussed later in this chapter). Menger regarded economic life, and in particular market processes, as phenomena where equilibrium did not prevail in reality. He described price formation as a struggle, in which a unique market(-clearing) price is not normally achieved. (Page 50) - In Walras’ system it becomes apparent that, if one has information about all markets except one, and if none of these other markets is characterized by excess demand, it can be concluded that there is no excess demand on the remaining market either. This has been called Walras’ law. (Page 51) - Unlike Jevons and Menger, who emphasized the demand side, Marshall gave the demand side and the supply side equal weight. (Page 53) - At the core of the theory of capital was the ancient issue of the rate of interest (see Chapter 2), although now the focus was set on its origin, its economic explanation and its systematic relationship with capital accumulation rather than its moral aspects. (Page 58) - Some would say it has been absorbed by growth theory and general micro- and macroeconomics. (Page 58) - When present and future goods are valued at the same time, present goods are as a general rule subjectively more valuable than future goods. (Page 59) - For Veblen, like Marx, history is shaped by class struggle, though not in battles over the means of production, but as a permanent conflict between the leisure class and the working class. (Page 75) - In the context of American institutionalists we may also mention Allyn A. Young (1876–1929) and Frank H. Knight (1885–1972), who combined elements of neoclassical and institutional economics. Young’s research on the role of increasing returns to scale in the growth process of an economy has paved the way for modern growth theory. Knight’s Risk, Uncertainty and Profit (1921) was a key contribution to modern decision theory. It introduced the distinction between probabilistic risk, which can be handled by insurance, and uncertainty, whose acceptance requires ‘entrepreneurial spirit’. (Page 76) - The second result is a differentiation of disciplines, ironically arising from the holistic view of economic, cultural and other social phenomena. The development of economic history as a separate subdiscipline was clearly an outgrowth of the work of the historical schools. (Page 77) - Summing up, we should take note of two other remarkable results of nineteenth- and twentieth-century historicism and institutionalism. The first is the development of development economics, which owes much to ideas inherited from these schools. (Page 77) - In the macroeconomic determination of aggregate production, some version of the time-honoured quantity theory of money is usually invoked to explain any change in the general level of prices as the result of changes in the volume of money in the same direction (Page 79) - The Fisher effect is based on the hypothesis that the real rate of interest is independent of changes in the monetary sphere. In Fisher’s view it is essentially determined by the intertemporal optimization of consumption and leisure, as the relative price of consumption now and consumption in the future. (Page 83) - Hayek argued that misguided monetary policy can make the market rate of interest stay below the equilibrium rate (Wicksell’s ‘natural rate’). The gap leads to a credit boom and a monetary expansion that redistributes purchasing power to the borrowing firms. Their demands for investment goods necessarily change the structures of prices and production and force households to abstain from consumption due to rising prices (forced saving). According to Hayek, the expansion must, however, inevitably find its end in a crisis. Sooner or later consumption goods become so scarce that the structure of prices and production is reversed, making many half-completed investment projects unfeasible. The crisis will return the system to its original level of planned saving and investment, as determined by general equilibrium theory. Hayek’s beliefs that the crisis is a cure and that monetary policy should be restrictive and neutral did not make his ABC theory very popular in the middle of the Great Depression. It was also criticized as logically unfounded by Sraffa and other economists at the time. In recent decades, the ABC theory has nevertheless made an occasional comeback whenever monetary expansion has ended in a financial crisis with a large number of failed long-term projects. (Page 85) - Friedrich August von Hayek (18991992), a second-generation member of the Austrian school of neoclassical economics, nevertheless came to use Wicksell’s approach in order to satisfy two purposes at once. The first purpose was to provide a general explanation of the business cycle; the second was to integrate monetary theory with neoclassical general equilibrium theory, i.e. to overcome the dichotomy. (Page 85) - The rate of interest is thus determined by liquidity preference. It is defined as a sort of risk premium for those who abstain from holding their wealth in its most liquid form, which is money. It determines both the levels of real income and prices (Page 88) - The key ideas in Keynes’s General Theory are thus found in the combination of the principle of effective demand, liquidity preference, and the marginal efficiency of capital, the internal rate of return on marginal real investment. (Page 89) - Keynes assumed that supply adjusts to demand within a short time. (Page 89) - Keynes’s General Theory led to the policy conclusion that, whenever effective demand is reduced by market forces, the emergence of underemployment can be prevented only if the government is prepared to stabilize demand by way of additional public spending. (Page 90) - Friedman’s critique of Keynesianism was based on a microtheoretical reinterpretation of both Keynesian and quantity theory. He argued that the quantity theory was essentially a theory of money demand, and not merely a hypothesis about price-level determination. In the traditions of Fisher, Marshall and the early Keynes, Friedman conceptualized money demand as demand for real balances, i.e. as money holdings adjusted for inflation. Therefore money demand is codetermined by the rate of inflation and its effects on holdings of other assets. Friedman’s theoretical and historical studies led to the conclusion that money demand (in terms of real balances) was much more stable than the Keynesians had claimed it to be. On the base of its stability it could be shown that the price level is determined by the quantity of money. (Page 95) - Modern Austrians are radical subjectivists and libertarians. They regard a system of free markets primarily as a necessary condition for the freedom of the individual, and not primarily as an efficient device for solving problems of resource allocation (as in neoclassical economics). In their concepts of market processes, innovative entrepreneurs are the driving forces of economic development, due to their propensity to take commercial risks. Because such action is based on purely subjective judgments, Modern Austrians tend to reject the use of mathematical models and econometric methods. (Page 105) - Schumpeter is now a key figure of evolutionary economics, which is sometimes labelled as neo-Schumpeterian economics. This rather loose grouping of economists could, true to the nature of their patron saint, be considered as heterodox from some angles, and as orthodox from others. Evolutionary economics overlaps with institutional economics, but puts greater emphasis on innovation and the diffusion of knowledge and technologies. (Page 105) - The ideas of Joseph Schumpeter (1883–1950) about the role of the entrepreneur were such that (apart from his original citizenship) he too could be considered a Modern Austrian. Yet Schumpeter, whom we have mentioned occasionally in earlier chapters, does not easily fit any pattern. (Page 105) - In the works of main figures like Smith, Marshall and Keynes, there is much reasoning about the complicated nature of the human mind. However, much economic theorizing has been built on a simplified creature, homo oeconomicus or economic man, who is a completely selfish, fully informed and utility-maximizing robot driven primarily by material incentives. Behavioural economics is a branch that introduces more realistic features of psychology. (Page 106)