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History of Economic Thought
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Before Adam Smith - ANS - Aristotle - Scholastics - Mercentilism - Pre-classicist: David Hume - Quesnay & Physiocrats Aristotle (384-322 BC) - ANS Examples of reasoning about economic issues: 1. Exchange can only come if there is a potential surplus from the transaction that parties can share...

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  • February 8, 2024
  • 73
  • 2023/2024
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  • history of economic thought

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  • ULC ECONS
  • ULC ECONS
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History of Economic Thought
Before Adam Smith - ANS - Aristotle

- Scholastics

- Mercentilism

- Pre-classicist: David Hume

- Quesnay & Physiocrats



Aristotle (384-322 BC) - ANS Examples of reasoning about economic issues:



1. Exchange can only come if there is a potential surplus from the transaction that parties can share

o Money simplifies transaction



2. Principle of diminishing marginal returns



BUT, no understanding of the economic system as a whole yet



Scholastics - ANS - Priests and teachers at medieval universities from the 13th century onwards



- Determination of a just price = in the interest of society



Natural Price: price emerging under free and effective competition, without monopoly, resource waste
or deceitful behaviour

o Cost of production

o Consumers' perception of utility of good

,- Although fragmentary theories, this was an attempt to establish a systematic theory based on
economic laws



Mercantilism - ANS - Positive surplus in balance of trade:

o Limited import:

---> Only raw materials

---> Most production domestic

o Promote export:

---> Inflow of silver and gold



Aim was to promote country's military and economic power relative to that of other countries



- Favorable balance of trade as measure for welfare



Pre-classicist: David Hume (1711-1776) - ANS - Monetary theory for open economy:

o No effect of money stock on real economy (contrary to mercantilists)

o Long-run theory

o International adjustment following domestic money shock

- Contours for later developed theory of money; MV = PT



Quesnay (1694-1774) and Physiocrats - ANS - Tableau Economique (1759)

o National accounts model

o Empirical knowledge about model parameters

- Supplements to tables:

o Agriculture is basis for economic wealth

o Government should promote free competition and free trade:

,"laissez faire, laissez passer"; contrary to mercantilists!

- His followers: Physiocrats



Classical School

Historical Background - ANS - 2 important revolutions led to start of classical thoughts:

1. Scientific Revolution

o Natural laws --> laissez-faire ("let it go")

o Period of Enlightenment



2. Industrial Revolution

o High growth of industry

o Competition

o Low-paid labor force



Classical School: Main ideas - ANS - Economic liberalism



1. Limited government intervention

o Enforcing property rights, public education, national defense



2. Self-interested economic behavior

o Profits, wages



3. Harmony of interests

o Serve society's interest best by pursuing private interest

, 4. All economic resources and activities important

o Land, labor, capital, entrepreneurial ability

o Agriculture, commerce, production, international exchange



5. Economic laws

o Law of CA, law of diminishing returns, labor theory of value, etc.



Adam Smith - Biography & Works - ANS - University of Glasgow

- Professor Uni of Edinburgh 1748 and University of Glasgow 1751

o David Hume

- Private tutor for young Duke of Buccleuch on journey through France (1764)

o Francois Quesnay



Works:

Theory of Moral Sentiments 1759

The Wealth of Nations 1776

- 5 books:

o I. Price Theory

§ Division of labor

§ Price formation and determination

o II. Capital accumulation and financial system

o III. Historical (development agriculture in Europe)

o IV. International trade

§ Criticism on Mercantilism

o V. Role of Public sector

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