ECON206 Midterm Review

Why study history in economics?

Economic theories are shaped by historical and political contexts, not just pure science.

Kuhn's view of science?

Science is influenced by politics and paradigms; theories are adopted within their era.

Heilbroner on economists?

Great economists wrote during upheaval: Smith (feudalism), Ricardo/Malthus (class wars), Marx (capitalism), Marshall (neoclassical prosperity), Keynes (macro), Friedman (Chicago School).

What replaced feudalism?

The market system, enabled by commodification of land, labour, and capital.

What is enclosure?

Merchants evicted serfs from common land, forcing them into wage labour.

Graeber's 'bullshit jobs'?

Jobs with no meaningful contribution, existing due to prestige or power dynamics.

Heilbroner's three paths to cooperation?

Tradition, Authoritarianism, Market system.

Smith's Theory of Moral Sentiments?

Humans are self-interested but can act morally by imagining an impartial observer's perspective.

Smith's Labour Theory of Value?

Labour, not nature, is the true source of value. Forms basis of classical economics.

Smith's invisible hand?

Self-interest guides markets to unintentionally promote social welfare.

Smith's two laws?

Law of accumulation (capital reinvested grows wealth) and law of population (wages fall back to subsistence).

Smith on capitalists?

Merchants manipulate society; their interests rarely align with public good.

Smith on mercantilism?

Criticised export-maximising policies as harmful and inefficient.

What was Adam Smith's critique of the East India Company?

He argued monopolies like EIC distort markets, reduce efficiency, and exploit societies.

Malthus's population theory?

Population grows faster than food supply, leading to cycles of misery.

Ricardo's rent theory?

Rent is payment due to land's natural qualities; a transfer of wealth, not new wealth.

Malthus vs Ricardo on gluts?

Malthus: general gluts possible due to saving; Ricardo: impossible, demand = supply.

Modern application of Ricardian rent?

Applies to scarce resources like GM seeds or patents.

Ricardo's comparative advantage?

Countries should specialise where they have lower opportunity cost.

Ricardo's escalator of progress?

Landlords benefit unfairly from rising food prices; capitalists squeezed.

Marx's dialectical materialism?

History driven by material conditions and class struggles.

Engels on class struggle?

Economic base shapes laws, politics, and culture; society evolves through conflict.

Marx on surplus value?

Workers produce more than they are paid; surplus taken by capitalists as profit.

Marx's view on crises?

Capitalism's contradictions cause recurring crises and eventual collapse.

Varoufakis on 'Cloud Capital'?

Capitalism replaced by digital platforms controlling data and behaviour (Amazon, Google).

Frase's four futures?

Rentism, Exterminism, Socialism, Communism depending on scarcity/abundance + hierarchy/equality.

Edgeworth's contribution?

Introduced utility maximisation, modelling humans as 'pleasure machines'.

Sidgwick's critique of Edgeworth?

People act from needs (like hunger), not mathematical pleasure calculations.

Henry George's solution to poverty?

A single land tax to capture rents and reduce inequality.

Hobson's theory of oversaving?

Excessive saving reduces demand, driving imperialism to absorb surplus.

Veblen's conspicuous consumption?

Spending to show wealth/status, often wasteful.

Veblen's costly signaling?

High expenditure signals wealth or social status.

Status externalities?

Consumption affects others' perceived status, creating social competition.

Veblen's Theory of Business Enterprise?

Businessmen disrupt production for profit, while engineers maintain efficiency.

Keynes on savings and investment?

Savings only drive investment when businesses expand; otherwise cause depressions.

Keynes's General Theory insight?

Depressions persist because investment doesn't always follow savings.

Furman's old consensus?

1970s-2008: Monetary policy preferred, fiscal stimulus seen as ineffective.

Furman's new consensus?

Since 2016: Fiscal policy complements monetary, can crowd in investment.

Keynes on involuntary unemployment?

Unemployment can persist indefinitely; no automatic self-correction.

What is ergodicity?

In an ergodic economy, shocks are temporary; in a non-ergodic economy, shocks permanently alter growth paths.

Lucas critique?

Fiscal stimulus fails because rational taxpayers save in anticipation of higher future taxes.

Friedman on methodology?

Theories judged by predictive accuracy, not realism of assumptions.

Musgrave's critique of Friedman?

Assumptions classified as negligibility, domain, heuristic, limiting predictive power.

Friedman's NAIRU?

Non-Accelerating Inflation Rate of Unemployment: unemployment below a threshold causes persistent inflation.

Friedman on business responsibility?

CEOs should maximise profit for shareholders, not pursue social goals.

Friedman's monetarism?

Inflation linked to money supply; central banks should control M, not interest rates.

Stigler on regulation?

Regulation is often captured by industries, serving firms instead of public.

Consumer Welfare Standard?

Antitrust judged by prices, ignoring wider harms like monopsony or corruption.

Isabella Weber's view on inflation?

Advocates price controls during crises; parallels to WWII.