Econ 107A Midterm 2

Adam Smith

• humans are individualistic

• motivated by self interest, capable of sympathy

• believed in the invisible hand, when individuals pursued self interest in free market, they promote societal good

• hated mercantilism, hurt consumers by prioritizing producer, restricted economic growth

• government support for public works and education

• proportional taxation based on income

What is the belief of Adam Smith’s invisible hand?

the hand of God

Jeremy Bentham

• founder of modern utilitarianism 

• humans are governed by pain and pleasure 

• happiness = moral good, law and morality aim to maximize happiness

• rights created by law not nature

• rejected revolution, favored reform through reason and legislation 

• believed in the government when justified by utility (health, education, public works)

• supported equality for everything (religion, homosexuality, races)

utilitarianism or utility principle

maximizing happiness for common good, reduction in sadness

focuses on outcome not input

actions are right if they promote happiness, wrong if they produce sadness

David Ricardo

• believed in free market

• limited government

• advocated for return for gold standard

• labor theory of value: value determined by labor (not other factors like education, experience) 

• emphasized comparative advantage (one person specializes in something)

• return to the gold standard

• abstract thinking, actions dictated by emotion 

What is the Harm Principle according to Mill?

mankind can interfere with individual liberty for self protection and to prevent harm to other

According to Mill, what is liberty is inseparable from what?

freedom of thought

What are the 3 components of human liberty

freedom of opinion

pursue something without impedient

freedom to unite for any purpose

(can’t harm others in the process)

What is Mill’s measured optimism?

everything evil can be removed

According Wages Fund Theory?

wages depend on fixed capital fund

John Stuart Mill

• believed in utilitarianism: pain and pleasure are the only things that exist

• believed government could be used dangerously but supported democracy

• big on women’s rights

• people can act however they want as long as it doesn’t cause harm

According to Mill, what is quantity vs. quality?

quantity: duration of pain or pleasure

quality: intensity or acuteness of pleasure and pain

What is highest quality of pleasure (golden rule)?

symathetic affection or loving one’s neighbor

How is pleasure and pain measured according to Mills?

intensity, duration, certainty or uncertainty, propinquity or remoteness

What did Thomas Hill Green emphasize?

community and freedom 

Karl Marx

• believed history is a class struggle

• believed in communism, capitalism will eventually become socialism and then communism

• attacked money, it turns all human relationship into monetary one

• society will eventually lead to revolutions which marks historical turning point

• abolition of private property

• no heavy government involvement

What was Friedrick Hayek believe in?

• critical about utilitarianism, flawed and potentially disastrous in practice