Summary of the book chapters of history of economic thought.
all persons and “schools” elaborated with their main characteristics.
most of the summary is in English, with some Dutch pieces in between
history book chaptes exam questions history of economic thought
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Alle personen met kenmerken van History of economic thoughts:
2. The mercantilist school: (1500-1776)
- Gold and silver are the most desirable from of wealth
- Nationalism one country should promote exports and accumulate wealth at the expense
of another country
- Free importation of raw materials that could not be produced at home + protection for
goods/materials that can be produced at home + export restrictions on raw materials. This is
called fear of goods.
- Favoured colonization
- Opposition to internal tolls, taxes and other restrictions on the movement of goods
because this can drive up the price of exports and that is not good. this leads to expanding
the internal market
- Strong central government to limit competition. Subsidies and tariffs.
- Importance of large and hard working population ready to fight for wealth of the nation.
And it keeps labor supply high and wages low. Voordelen hiervan:
o Low wages = lower export prices = increase inflow of gold
o Reduce luiheid and promote greater participation in the labor force
- Mercantilists are rent seeking, they try to increase profits by securing laws and regulations
from government
- Importance of international trade they wanted a surplus of exports in order to
accumulate specie. But this was self-vernietigend because more specie available means
prices go up and imports would increase so money would be shipped abroad = poverty.
- International trade is a zero-sum game = gain to one party exactly offset by the loss to other.
So how can exchange of goods add to the nations well-being?
3. The physiocrats school: (1756-1776)
- Reaction to mercantilism
- Natural order human activities should be brought into harmony with these natural laws.
Everything works most efficient if unstructured.
- Laissez-faire no government intervention. Free internal movements of goods.
- Emphasis on agriculture only agriculture was productive because it produced a surplus.
- Taxation on landowner landowner received surplus in form of rent, only the landowner
should be taxed.
- Interrelatedness of the economy
- Boeren hebben voordeel van de ideeën van physiocrats
o Several ideas of the physiocrats were incorrect. They thought that industry and
trade are sterile, so only landowners should be taxed because only land could yield a
surplus. They also thought that agriculture was most important, but it was industry.
- They examine society as a whole
- They founded economics as a social science
- Law of diminishing returns
- Unconcerned with foreign trade
4. The classical school, forerunners: David Hume: (1711-1776)
- Price specie-flow mechanism analysed the mechanism of equilibrium that would operate
without government intervention
- Price level changes if there are changes in money.
o Increase in money = boost spending, production and employment = increase in price
o Automatically comes back to equilibrium
, - Accepted Locke’s quantity theory of money = price is determined by quantity of money
available, given the velocity and quantity of output.
- International trade is a positive sum game = the payoffs sum to a positive number
5. The classical school: Adam Smith:
- The enlightment peoples reasoning ability and concept of natural order
- Influenced by physiocrats: minimal government intervention + circular process of production
- Division of labor increases the output for three reasons:
o Each worker develops increased skill in one specific task, so specialisatie
o Time is saved if the worker doesn’t need to switch between different kind of work
o Machinery can be invented to increase productivity once tasks have been simplified.
You become an expert at your own part of works so you will get more productive. -->
Capital accumulation, so it will make people and capital more productive.
Division of labor/ markets and exchange holds us together.
- Emphasis on manufacturing production and the productivity of labor focus on industry.
- Pursue own personal interest. invisible hand: competition drives down the price and
profit for each seller. Only one seller with very high profit? New competitors will join the
market, supply increases and therefore profit decreases. equilibrium.
- No government intervention in international trade. But smith saw some major functions for
the government:
o To protect society from foreign attack
o To establish the administration of justice
o To erect and maintain the public works and institutions that private entrepreneurs
cannot undertake profitably
- To finance government activities smith recommended taxation. Some maxims for good taxes.
- Two kinds of value:
o value in use = expresses the utility of some object
o value in exchange = expresses the power of purchasing other goods which the
possession of that object conveys.
water-diamond paradox.
- Labor theory of value in a primitive society (without capital, only labor): the value in
exchange = relative value is determined by the amount of labor necessary to produce it. So
how much labor do you need to produce one commodity?
o Labor is the real measure of the exchangeable value of all commodities
- Labor theory in an advanced economy (with capital): exchange value = how much labor can
we buy in exchange for this commodity?
o The real value of commodities can’t longer be measured by labor contained in them
- Natural price is the long run price below which the entrepreneurs no longer would continue
to sell their goods, depends on cost of production. Natural price determines the value of a
good, not the market price.
- The actual price at which a commodity is sold is called market price.
- Smith addressed three facets of wages:
o The aggregate level of wages
o The growth of wages over time
o The wage structure
The wage fund theory (1,2). there is a stock of circulating capital out of
which present wages are paid. This consists of the savings of the capitalists
and is dependent on the revenue from previous production and sales.
Vraag naar werknemers stijgt, lonen stijgen, aanbod van werknemers stijgt
want meer kinderen worden geboren, lonen dalen.
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