Political Economy Final

Say’s Law

The theory that supply creates it’s own demand

Keynes’s challenge to Say’s Law

wage cuts cause economic freefall because workers have less money, so less demand, meaning less spending and less employment

Keynesian economic ideas regarding unemployment

Public sector spending will boost economic demand, which boosts employment

Limits of Keynesianism

Government lacks control over wages, but can influence wages via minimums and spending

Interrelated institutions of the state

Capitalism, Bureaucracy, and Democracy

Bureaucratic elements of the state

Large bureaucratic entities are necessary for the state to survive, but then different institutions develop different characters. Change is slow to these institutions, and sometimes they can be captured by monetary interests

Circular and cumulative causation

Economic inequalities, once established, tend to grow and self-perpetuate

Example of circular and cumulative causation

Racial discrimination causes poverty, which can create more justification for racism

Positive circular and cumulative causation

Government policies like affirmative action can help minorities and reverse their disadvantages

How institutional economics uses the capital-labor-state famework

It treats them all as diverse groups, with each institution being made up of different entities and goals

How does institutional economics differ from neoclassical and marxist approach

It focuses on changes and history, not theorizing from armchairs. Focused on reality

Conditions for capital accumulation

Rapid circulation of capital and economic and social reproduction

Rapid circulation of capital

The thought that barriers to capital movement should be removed to maximize productivity

Economic and Social reproduction

The need for strong social institutions and economic stability for capital accumulation

The Circuit of capital

M-C^LP_MP … (P) … C¹-M¹

Malthusian view of labor growth and demand

The masses will always live in poverty as wage increases cause population increases which strains food supply with decreases labor standards

Marxian views of labor growth and demand

The recreation of a “reserve army of labor” made up of surplus population keeps the poor poor because the capitalist can always find someone else to work for less

Theory of disproportionalities

The anarchist nature of a capitalist system is not planned, so one economic failure in over/underproduction can crash the whole economy.

Theory of Falling Rate of Profit

The more capital is accumulated, the greater the falling rate of profit. This means the capitalist does not invest as much, and investment falls. Without investment, economy crashes

Theory of undercomsumption

If capitalists keep wages low, the individual has less buying power, which keeps demand low

Changes in capitalism in early 19th century

The growth of factories and wage labor created alienation and dramatic exploitation and social change

Marx criticism of utopian socialism

He felt that utopians did not address the root causes of worker exploitation and inequality

Alfred Marshall

Victorian Economist who wanted to remove moral thought from economics and focus on growth

Thorstein Veblen

Pioneer of institutional economics

Joseph Schumpeter

Economist who thought that socialism would arise, but it would be regrettable. He thought that rationalizing the economy would grow to managerial capitalism and stagnation.

Gunnar Myrdal

Institutional economist who didn’t think economics was a science and tried to blend capitalism and socialism

Pareto efficiency

change is good when it benefits the most people without harming others

Market failures

Sometimes the market creates imperfect competition, costs of economic activity is not reflected in prices, or public goods are not provided by markets

Government Failures

Governments can be self-interested, skepticism of the state, and some think policies can’t be analyzed like a market

Neoliberal ideas

deregulation, minimum state involvement in economy, and less taxes

Ted Wheelwright

Developer of Australian political economy focused on the analysis of globalization

Trans-national corporations

large corporations that cross national boundaries

Cecil Rhodes

Colonial governor who worked to exploit cheap colonial labor in the imperial British empire

Infant protection industries

Developing nations with small industries may need protections to guarantee national ownership and to prevent takeover by foreign nations

Gendered Division of labor

concentrates men and women in different fields and jobs.