HIST 159B midterm - History of Economic Thought

im gonna crash out

Population theory

Population will always outrun food supply and society’s improvement is impossible without limiting reproduction.

Who developed population theory?

Thomas Robert Malthus

How did Malthus divide society?

Capitalists, landlords and workers

How did Malthus perceive the lower class?

He believed that they were not moral, welfare encouraged the poor to indulge themselves in immoral behavior. Their inequality was inevitable.

What concepts did Malthus have an influence developing?

• Economic optimism

• David Ricardo’s theory of wages was built upon Malthus’ population theory

How did Adam Smith perceive human nature?

Humans are naturally inclined to exchange and barter. They are interdependent and pursue exchange out of self-interest. Mutual dependence and solidarity distinguishes them from animals

Subsistence economy

An economic system in which production and consumption only fits within their own needs rather than having production for the sake of profit

Water-diamond paradox

Developed by Adam Smith, it illustrates how water is the most useful resource but it has no purchase value, meanwhile diamonds do not have any value in use, but it is considered to have a very high exchange value.

The Invisible Hand

Developed by Adam Smith. The market that coordinates the activities of individuals mainly pursuing their self interest. The invisible hand reflects the ability of free markets to reach desirable outcomes despite humans mainly pursuing their own self-interest

What is differential rent? Who developed the concept?

David Ricardo’s theory that the price of the least fertile piece of land determines the price of corn. It means that those who find more fertile land results in less costs in terms of labor inputs, meaning they make a greater profit.

What is comparative advantage? Who developed this idea? What aspects of capitalism does comparative advantage not take into account?

David Ricardo’s assertion that countries should focus on production if they have a natural/technical advantage for it. Meaning, they should specialize in the good they have the greatest advantage vis-a-vis their trading partners. They should stop producing other goods even if they can do it cheaper than their competitors.

This concept does not take into account that capitalists do not care about where a product comes from. They will put themselves at risk if it means they receive higher profits.

What is original accumulation? Who developed this idea?

Notably developed by Karl Marx. Depicts a process that predates capitalism and often includes violent processes of dispossession and appropriation (for instance, the plundering of the colonies)

What is capitalist accumulation? Who developed this idea?

Refers to the voluntary exchange of free parties, between the capitalist and the worker. The capitalists hire workers to work on their land or in their factories and in exchange, workers receive a wage.

Because the violence took place in the prehistory of capitalism, capitalist accumulation can appear as the voluntary exchange of free parties— the capitalist and the worker.

What did Marx believe was the only source of monetary value?

Labor

What is necessary labor? Which economist does this idea attribute itself to?

The labor that is needed to produce all the goods and services consumed by the working class. Idea mostly attributed to Marx.

What is surplus labor? Which economist does this idea attribute itself to?

The difference between the necessary part and the actual of the workday. Attributed to Marx.

What is surplus value? Which economist does this idea associate itself with?

Over time, surplus labor turns into surplus value. Associated with Marx.

What is utilitarianism?

Actions are right in proportion as they tend to promote happiness. They are wrong when they produce the opposite of happiness.

Who were the utilitarians?

• Jeremy Bentham

• John Staurt Mill

• William Stanley Jevons

Use Value, who is this associated with?

Usefulness, the potential to satisfy a need. Marx

Exchange value, who is this associated with?

The amount of other goods or money a good achieves when being exchanged on a market. Marx

What was Jeremy Bentham’s belief of human nature?

All motivations can be reduced to self-interest, a quest for pleasure. Each person is the sole judge of his own pleasures and interpersonal comparisons of pleasure are impossible

Where does value lie for Jeremy Bentham?

Utility

What is Felicific calculus and who coined the term?

Bentham’s idea that utility depends on intensity, duration, purity, extent, and so forth.

How did John Stuart Mill think of human nature?

Did not believe that all actions were motivated by self interest. He believed that most people had personalities shaped by a competitive capitalist culture that acted out of self-interest in their economic behavior.

Monopoly goods

Prices can be dictated by the producer

Finite quantities

Goods in which the price is determined by supply and demand

Infinite quantities

(“Can be multiplied”) The price (except for some periods of adjustment) is determined by production costs.

What ideas did John Stuart Mill help develop?

Ideas of economies pertaining to scale, opportunity cost, and built upon the concepts of comparative advantage.

How does William Stanley Jevons defined utility?

Anything a person desires should be assumed to have utility for them

Total utility + which economist?

The total amount of utility provided by a good or specific class of goods. Jevons

Marginal utility + which economist?

The amount of utility provided by the last unit of a specific good. The amount of utility tends to decline because the more one has from a good, the less desirable it becomes. (Jevons)

What did marginal utility help explain?

Smith’s water-diamond paradox

What concept did Leon Walras develop?

General equilibrium

What is general equilibrium?

Created mathematical terms to show that a general economic equilibrium is possible if certain conditions are in place. Focused on equalization of supply/demand when exchangers (economic agents) combine marginal utilities from goods traded on different markets.

TRUE/FALSE: Thorstein Veblen was a marginalist.

False

Who was the founding father of institutional economics?

Thorstein Veblen

How did Thorstein Veblen interpret human nature?

Human nature is a hedonistic conception of man.

What concepts are behind social emulation?

Human conduct is heavily impacted by the conduct of others in a group, social norms, and culture. Ownership gives economic security, social status and distinction. Marginal utility maximizes the individual of the marginalist assumption.

How did Thorstein Veblen discuss leisure and working?

Leisure was the main way to show wealth. Working was seen as disreputable and morally impossible to the noble

What is conspicuous consumption?

Spending money on consumer goods for the sake of elevating social status. Conspicuous consumption is wasteful.

What was Joseph Schumpeter known for?

Known for work on innovation and business cycles. Advocated for government intervention during economic crises.

What was Joseph Schumpeter’s main argument?

Capitalism is an evolutionary process that can never be stationary. Change is not a response to external signals and is formed within a capitalist system searching for new methods of production/consumption. Crisis is necessary for a capitalist development.

What is creative destruction and who is associated with it?

Old forms of production are replaced by new and superior ones. It is essential to a capitalist development and is necessary for economic progress. (Schumpeter)

What role do entrepreneurs play in Schumpeter’s evolutionary capitalism?

They are agents of economic change by constantly revolutionizing the process of production.

How did Marx define alienation?

The division of labor and use of machinery comes with a loss of control and de-skilling workers by making them more replacable.

Absolute surplus value

Surplus value is increased through the expansion of the workday

Relative surplus value

Surplus value is increased through the shortening of the necessary part of the workday (chiefly through intensification of work)

What is the consequence of surplus labor according to Marx?

Class struggle, an inherent conflict of interest between workers and capitalists. Workers want to limit the workday to necessary labor time, but capitalists want to expand it to increase surplus value and profit. Workers cannot stand a chance against capital and only succeed when acting collectively.

Simple reproduction

Capitalists consume the entire surplus (profit)

C-M-C

Extended reproduction

Capitalists reinvest part of the surplus in order to gain more profit

M-C-M

The satisfaction of human needs is only a byproduct of the accumulation process.