HISTORY OF ECON THOUGHT CHAPTER 1

1723

What year was Adam Smith born?

The Snell Exhibition to study at Balliol College, Oxford.

What significant scholarship did Adam Smith receive in 1740?

Chair of Logic.

What position did Adam Smith hold at the University of Glasgow in 1751?

Chair of Moral Philosophy.

What chair did Adam Smith take in 1752 at the University of Glasgow?

The division of labour

What major ideas did Smith begin developing during his time as a professor?

The Theory of Moral Sentiments.

What is the title of Adam Smith's 1759 publication?

The theory of moral sentiment

Human conduct through motives like self-love, sympathy, desire for freedom, and propensity to exchange.

Tutor the son of Duke of Buccleuch.

What position did Smith take in 1762?

The Wealth of Nations.

What significant work did Smith begin while in France in 1764?

1776

When was The Wealth of Nations published?

Commissioner of Customs for Scotland.

What role did Smith serve from 1776 to 1790?

1762

What year did Smith resign from his professorship?

Lowland Scotland.

Where was Adam Smith born?

14 years old.

At what age did Adam Smith enter the University of Glasgow?

Francis Hutcheson.

Who was Adam Smith's influential professor at the University of Glasgow?

The Theory of Moral Sentiments.

What is the title of Adam Smith's earlier work published in 1759?

The division of labor.

What did Smith argue was the cause of public opulence?

Specialization of Workforce and Allocation of Labour Force.

What are the two senses of the Division of Labour according to Smith?

The greatest improvement in the productive powers of labour.

What does 'specialization of workforce' refer to?

Productive labor leads to tangible objects and surplus, while unproductive labor does not contribute to future wealth.

How did Smith distinguish between productive and unproductive labor?

Churchmen, lawyers, physicians, and entertainers.

What types of labor did Smith classify as unproductive?

It can be largely translated to modern 'national income'.

How does Smith's concept of wealth relate to modern economic terms?

His exclusion of service activities from calculations of social product.

What key difference exists between Smith's definition of wealth and modern interpretations?

Understanding economic expansion over prolonged periods.

What was Smith's focus regarding economic change?

Value in Use vs. Value in Exchange.

What distinction did Smith make regarding value?

Value in exchange.

Which type of value did Smith find economically interesting?

A 'real' measure of value distinct from volatile nominal market prices.

What did Smith seek as a measure of value?

Value was based on the quantity of labor required for production, exemplified by the exchange rate between beavers and deer.

What was the basis of value in early society according to the labor theory?

In complex societies, value shifted to 'command over labour,' reflecting not just labor input but also the labor that could be commanded through sales.

How did the measure of value change in complex societies?

The natural price is composed of wages, rents, and profits.

What are the three components that make up the 'natural price' of commodities?

Market prices may deviate from natural prices, but competition is expected to push market prices toward natural prices, a concept related to equilibrium.

What is the relationship between market price and natural price?

Practices that thwart market behavior are socially reprehensible, connecting to the idea of the 'invisible hand'.

What social message is implied by the concept of natural price?

The problem arises when wage rates or labor productivity change disproportionately, potentially leading to misleading conclusions about economic growth.

What is the Index Number Problem in relation to labor measurement?

They criticized it for neglecting the demand side of price determination.

What criticism did later economists have regarding the labor theory of value?

He acknowledged labor heterogeneity but used market bargaining to reduce skilled and unskilled labor to a common measure, weakening his distinction between natural and market price.

What inconsistency did Smith recognize in labor units?

He divided it among workers (wages), capitalists (profits), and landowners (rents).

How did Smith categorize the national revenue among different social classes?

He characterized them as 'indolent' and less conducive to economic progress compared to capitalists.

What was Smith's view on large landowners?

Wages are influenced by job characteristics, location, duration, and the bargaining strength between employers and employees.

What factors influence wages according to Smith?

Wages cannot fall below the level required to maintain a healthy and productive labor force.

What is the subsistence minimum in relation to wages?

Wages rise in expanding economies, fall in declining economies, and remain stable in stationary economies.

How are wages related to the state of the economy?

The volume of funds destined for wage payments, advanced by employers, determines labor demand.

What determines labor demand according to Smith?

He believed that the liberal reward of labor, as a result of increasing wealth, is the cause of increasing population.

What was Smith's view on population growth in relation to labor rewards?

He thought that higher wages would lead to lower profits.

What was Smith's initial thought regarding the relationship between wages and profits?

Increased competition among capitalists is expected to 'compete down the average rate of return on capital.'

What does Adam Smith suggest about competition during economic expansion?

As capital accumulates, it becomes increasingly difficult to find profitable methods of employing new capital.

What is the concept of diminishing returns to capital according to Smith?

High or low rents are the effect of prices, while high or low wages and profits are the causes of prices.

How does Smith differentiate between rents and prices?

Rents rise due to nature's generosity in agriculture yielding surplus and increasing demand for land's products from a growing population.

What factors contribute to the rise of rents according to Smith?

The rising demand exceeding production expansion increases agricultural prices, with the majority of this 'windfall' accruing to landowners as rents.

What is the implication of rising agricultural prices for landowners?

A rising share of national product going to 'high-living landlords' at the expense of 'frugal profit recipients' could undermine growth.

What potential issue does Smith raise regarding the distribution of national product?

Gross revenue is the total annual produce of land and labor, while net revenue is what remains after deducting maintenance expenses for fixed and circulating capital.

What is the difference between gross and net revenue in Smith's analysis?

The shares accruing to capitalists and landowners primarily determine net revenue, as wage earners have little surplus.

Who primarily determines net revenue according to Smith?

Saving is crucial for converting net revenue into accumulation, as capitals are increased by parsimony and diminished by prodigality.

What role does saving play in capital accumulation?

Capitalists are identified as the principal agents through which net revenue can be converted into accumulation.

Who does Smith identify as the principal agents of accumulation?

Smith asserts that what is annually saved is consumed in nearly the same time as what is annually spent, ruling out hoarding.

What does Smith imply about saving and investment?

He viewed mercantilism as an expression of privilege and favoritism that obstructed market expansion and diverted economic activity.

What was Smith's objection to mercantilism?

He was skeptical of government intervention, viewing it as suspect except for essential functions like law maintenance and national defense.

What is Smith's stance on government intervention in the economy?

His opposition to poor relief stemmed from the belief that existing laws restricted labor mobility and suppressed economic growth.

What critique did Smith have regarding poor laws?

The 'invisible hand' suggests that individuals pursuing self-interest within a competitive framework will promote the common good.

What does the 'invisible hand' concept imply in Smith's economic theory?

He believes that economic growth and a competitive order are mutually reinforcing, with growth stimulating competition and vice versa.

How does Smith view the relationship between economic growth and competition?

He is generally optimistic that the benefits of growth would be shared by all segments of society.

What is Smith's general outlook on the benefits of economic growth?

He hints at potential complications such as population growth offsetting wage gains and shifts in wealth towards landowners.

What complications does Smith hint at regarding economic growth?