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History of economic, summary of the book chapters

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Summary of the book chapters of history of economic thought. alle personen en ''schools'' uitgewerkt met hun belangrijkste kernmerken. grootste deel in het engels, met soms wat nederlandse stukjes ertussen

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  • 4 januari 2020
  • 12
  • 2019/2020
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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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