Economics: A Pluralist Definition – Vocabulary Flashcards
What is Economics?
Economics as a field is shaped by ideas and policy; influential economists and philosophers have steered political and economic systems from mercantilism to capitalism, regulated mixed markets to neoliberalism, and beyond.
Key historical ideas:
Adam Smith helped spur demand to end mercantilism and begin capitalism (late 1700s).
Karl Marx inspired critique of unregulated capitalism.
Thorstein Veblen and John Maynard Keynes promoted regulated, mixed market capitalism (Great Depression).
Friedrich Hayek critiqued bloated bureaucracy and influenced moves toward reduced government size (1980s neoliberal era).
Economic ideas influence daily life: housing, food, tuition, employment, wages, mobility opportunities, prices, environmental conditions, social interactions, and interactions with institutions.
Goal: understand how economies work to improve opportunities and outcomes; avoid political exploitation of economic ideas.
DOI for the book referenced: DOI: 10.4324/9781003368441-2
1.0 CHAPTER 1 LEARNING GOALS
After reading this chapter you should be able to:
Explain in your own words the importance of economics for individuals and society.
Contrast unregulated market capitalism with mixed market capitalism.
Describe differences between mainstream economics and political economics, including definitions and methods.
Apply the methods of both mainstream and political economists to economic issues.
Understand how ten schools of economics align with conservative, moderate, liberal, and radical approaches.
Note: there are many new ideas; focus on basic concepts and general understanding; details will clarify as you progress.
1.1 WHY ECONOMICS MATTERS: ECONOMIC POLICY
Economics is crucial for voters and policymakers; understanding different schools helps evaluate policy.
Austerity example: governments cut social spending (e.g., food stamps, unemployment insurance, education) and/or raise taxes to balance budgets; this can be harmful during recessions.
In recessions, economies experience lower incomes and spending, leading to deficits; austerity can worsen the recession and deficits in the short term.
Key macro idea: from a recession, stimulating spending via government spending and tax cuts can promote growth and potentially reduce deficits in the long run.
Important takeaways:
Economic ideas influence political choices and policy outcomes.
Economists disagree; politicians may cherry-pick ideas; critically evaluate evidence and form your own view.
Macro events impact micro markets; micro analysis cannot ignore macro context.
Learning frame: systematically analyze different views, assess evidence, and form an informed perspective.
The chapter introduces ten schools of economic thought and how they relate to political stances.
The difference between mainstream economics (ME) and political economics (PE):
ME focuses on resource allocation, rational decision-making, and measurable relationships; uses models and statistics.
PE studies how social groups, power, institutions, culture, and politics shape production, distribution, and surplus; includes PPE and RPE.
Important definitions:
Mainstream economics (ME): study of how society manages scarce resources to satisfy wants; analyzes costs/benefits and rational choices; emphasizes statistical relationships.
Political economics (PE): study of how groups within an economy interact to determine production, distribution, and surplus; includes PPE and RPE.
The economy is a pluralist field: combine insights from ME and PE to better understand real-world dynamics.
1.3 WHY TAKE A PLURALIST APPROACH TO THE STUDY OF ECONOMICS?
Pluralist economics includes best ideas from major perspectives and highlights areas of agreement and disagreement.
Definitions:
ME: how society manages scarce resources; rational choices; focus on costs/benefits and predictable relationships.
PPE (Progressive political economics): focus on social provisioning; culture, history, technology; how economy evolves; compare consumer behavior across countries.
RPE (Radical political economics): focus on power, class, and conflicts shaping the economy; resources and institutions.
The book distinguishes ten schools of economic thought and places them along a spectrum of how much government intervention they favor.
Policy typology: conservative (laissez-faire), moderate (mixed with regulation), liberal (more government), radical (democratic socialism/communism).
The overall real-world economy is typically a mixed market capitalist system, varying by country; size of government differs across economies.
Mainstream vs. political economy: a combined lens helps explain differences in growth, inequality, and policy effectiveness.
1.4 ECONOMIC METHODOLOGY: HOW TO “DO” ECONOMICS
Given complexity, economists narrow focus to key variables; ME aims to be as scientific as possible.
ME methodology:
1) Use simplifying assumptions about economic actors (e.g., rational, well-informed, self-interested consumers) to build tractable models.
2) Construct mathematical models to make precise predictions (e.g., law of demand).
3) Test models with statistical data; compare predictions to real-world outcomes.Example: gasoline demand model; a typical relationship: a 10% price increase could lead to a roughly 2% drop in quantity demanded (illustrative historical rule).
The law of demand can be depicted by a demand curve (Figure 1.2 in text).
Political economists critique ME assumptions: consumers may be irrational, influenced by advertising, culture, gender, race, class; market power and unethical practices (e.g., manipulation, reviews) distort consumer decisions.
The Amazon example: mainstream economics emphasizes rational, well-informed consumers and price/selection; PPE adds analysis of behavioral biases, reviews, and pricing strategies that exploit cognitive biases.
The next sections use Amazon to illustrate how both ME and PPE can contribute to understanding consumer behavior.
1.5 THE SCIENTIFIC METHOD IN ECONOMICS: HOW SCIENTIFIC CAN ECONOMICS BE?
Positive economics aims to determine facts about how the economy works, free of bias; but there are limits.
Card and Krueger (1994) minimum wage study challenged the belief that higher wages reduce employment; broader evidence generally suggests modest or no employment effects from modest wage increases.
Lessons:
Scientific economics can be useful for policy, but establishing definitive facts is hard due to conflicting studies and real-world complexity.
Logic alone (e.g., wage-increase reduces employment) can mislead; empirical testing is essential.
There are limits to the science of economics; many normative judgments remain.
1.7 MACROECONOMIC CRISES, AND THEIR INFLUENCE ON MICROECONOMICS
Before the 2007-2008 crisis, ME largely viewed macroeconomy as stable with advanced equilibrium models; PE researchers argued crises are frequent due to investment behavior and shocks.
ME: general equilibrium models used by central banks to manage inflation and growth; PE: focus on crisis-prone dynamics, housing bubbles, and financial fragility.
Business cycle: a typical cycle includes recession, recovery, boom, and bust; the cycle tends to be about a decade long, though patterns vary.
The Great Recession (2008) and COVID-19 recession (2020) spurred renewed Keynesian-style policy responses; post-crisis, there is greater convergence between ME and PE in macro contexts, though differences remain.
Macroeconomic swings strongly affect microeconomic behavior in markets (labor, housing, goods).
1.8 THE RICH SOCIAL SCIENCE OF ECONOMICS
The chapter lists ten schools of thought (see Figure 1.3); there is overlap among schools.
Summary of schools (high-level):
Conservative: laissez-faire, focus on efficient markets; skeptical of government intervention; includes Monetarist, New Classical, Supply-Side.
Moderate (New Keynesian): markets work but need regulation to fix market failures.
Institutional, Social, Feminist, Post-Keynesian (Progressive): emphasize institutions, culture, and social dimensions; government plays a larger role.
Marxist: focus on class conflict, exploitation, and the dynamics of capitalism; supports more radical reforms.
The book also describes the balance of government in different economies (Figure 1.5 shows how government size varies globally).
Conclusion: studying multiple schools helps build a nuanced understanding of economic systems and policy trade-offs.
1.9 CONCLUSION
Economics is about understanding how economies allocate scarce resources through various mechanisms and institutions.
Mainstream economics provides tools like the PPC and cost-benefit analysis; political economy expands analysis to institutions, culture, inequality, and power.
A balanced, pluralist approach helps explain real-world outcomes and supports better decision-making.
2 Scarcity, choice, and opportunity cost
Chapter 2 shifts to a mainstream model: the production possibilities curve (PPC) to analyze scarcity and choices.
Chapter goals: define scarcity, opportunity cost, efficiency, cost-benefit analysis; use PPC to analyze resource allocation; differentiate capital goods vs consumer goods; critique mainstream limitations via political economy.
2.1 SCARCITY, CHOICE, AND OPPORTUNITY COST
Scarcity exists when unlimited wants exceed available resources; applies to consumers, firms, and governments.
Mainstream framing: choice is analyzed with cost-benefit analysis; opportunity cost is what you give up when choosing one option over another.
Examples:
Cost of attending college: direct costs plus foregone earnings; lifetime earnings often justify the investment despite high upfront costs.
Sony’s PC division example: resources diverted to mobile devices due to changing demand; opportunity cost is the alternative use of those resources.
F-35 program example: defense spending vs. alternative uses (education, public goods) illustrates opportunity costs and trade-offs.
Efficiency concept: opportunity cost is only meaningful if resources are being used efficiently; otherwise, increasing production of one good may not require sacrificing another.
Production Possibilities Curve (PPC) encapsulates choices under scarcity with two goods (e.g., defense vs education).
Key formula for growth factors: Economic Growth = rac{dL}{dt} + rac{dK}{dt} + ext{Productivity Growth} or synthesized as ext{Growth} = rac{ ext{ΔL}}{ ext{L}} + rac{ ext{ΔK}}{ ext{K}} + ext{ΔProductivity} depending on notation.
2.2 THE PRODUCTION POSSIBILITIES CURVE: A SIMPLE, MAINSTREAM MODEL
PPC model shows all combinations of two goods that can be produced with fixed resources and technology.
Example: defense vs education for the U.S. government.
Points:
A: (Education, Defense) = (0, 40)
B: (60, 35)
C: (90, 20)
D: (100, 0)
Opportunity costs between points demonstrate trade-offs; e.g., from A to B: 5D = 60E, so 1D = 12E and 1E ≈ 1/12 D.
From B to C: 15D = 30E, so 1D = 2E.
From C to D: 20D = 10E, so 1D = 0.5E.
The curved PPC reflects specialization of resources; early transfers cost more or less depending on the region of the curve.
Assumptions of PPC:
Only two goods considered; full employment of resources; fixed technology; ceteris paribus (other factors unchanged).
Inside PPC (e.g., point E) indicates underutilized resources; outside PPC is unattainable with current resources/technology.
The shape of the PPC (concave) arises from resource specialization: some inputs are better suited for defense and not for education, and vice versa.
Numerical example: From A to B, 5D = 60E; 1D = (1/12)E; 1D = 12E (shows increasing opportunity cost).
2.3 THE SPECIALIZATION OF RESOURCES
PPC slope becomes steeper as more resources are shifted to education due to specialized inputs; early shifts have high gains for education with small losses in defense.
The law of increasing opportunity cost: as more of one good is produced, the opportunity cost of additional units increases due to increasing use of inputs ill-suited for that good.
Real-world examples:
1980s Soviet Union defense shift from 17% to 3% of GDP; defense resources less adaptable to consumer production, so gains were smaller than expected.
United States transition from gas to electric cars involves large infrastructure changes and non-trivial opportunity costs.
If resources were not specialized, the PPC would be a straight line with constant opportunity costs.
2.4 SHIFTS IN THE PRODUCTION POSSIBILITIES CURVE
PPC outward shifts when resources or technology improve; shifts can be axis-specific depending on the nature of the changes:
Entire PPC outward if robots improve productivity for both goods.
Outward shift only on cars axis if robots only improve car production.
Outward shift only on food axis if robots only improve food production.
A-d shift inward on both axes if a disaster reduces resources/tech.
2.5 CAPITAL GOODS, CONSUMER GOODS, AND ECONOMIC GROWTH
Distinction:
Capital goods: machinery, equipment, buildings used to produce more goods; growth of capital goods tends to shift PPC outward (economic growth).
Consumer goods: goods for current consumption; do not directly increase future productive capacity.
Growth equation: ext{Economic Growth} = rac{dL}{dt} + rac{dK}{dt} + rac{d( ext{Productivity})}{dt}
Growth factors: expanding labor force, investing in capital, improving technology and human capital.
Example: China’s growth (1980–2019) ~8.5% per year; US growth ~1.7% per year; growth driven by labor expansion, capital investment, and productivity gains.
2.5.1 Defense spending and growth
Defense spending is treated as a consumption-like good rather than a direct growth driver, even though it supports national security.
PPC example (capital vs. consumer goods): allocating more to capital goods yields longer-term growth, whereas more defense spending may reduce future growth opportunities.
The US currently allocates substantial defense spending relative to peers; this has implications for current consumption vs. future growth.
2.6 A POLITICAL ECONOMY CRITIQUE OF SCARCITY AND CHOICE IN MAINSTREAM ECONOMICS
The modern economy produces enough to sustain high living standards; mainstream view emphasizes efficient allocation and Pareto efficiency (no one can be made better off without making someone else worse off).
Political economists argue that mainstream analysis neglects important normative dimensions (ethics, culture, inequality, gender empowerment, underemployment).
Key topics:
2.6.1 Ethical considerations: allocation of resources (e.g., defense vs feeding children) raises normative questions.
2.6.2 Culture and conspicuous consumption: status-seeking affects demand and resource use; consumer culture shapes priorities.
2.6.3 Underutilized resources: rust belt example; not all resources can readily shift to new uses; underemployment matters.
2.6.4 Inequality: abundance for the few vs poverty for many; Marxist view focuses on class structure and power.
2.6.5 Gender empowerment: policy differences in family leave and health/education investments; gender dynamics shape resource allocation.
Synthesis: mainstream focuses on costs/benefits of specific decisions; political economy broadens to institutions, culture, and power.
2.7 INSTITUTIONAL ANALYSIS: A POLITICAL ECONOMY APPROACH TO THE STUDY OF RESOURCE ALLOCATION
Institutions are the rules, organizations, and social structures shaping economic behavior; include formal (laws, government) and informal (culture, norms) elements.
Political economists analyze how power structures, class interests, and institutions influence why a country devotes resources to things like F-35s rather than education.
The U.S. military spending example illustrates how national ideology, corporate interests, and political dynamics intersect in policy choices.
2.8 CONCLUSION
ME provides a focused, mathematical toolkit (PPC, cost-benefit analysis) for analyzing allocation and growth.
Political economists enrich this with insights into ethics, culture, underemployment, inequality, and gender.
A combined ME + PE approach gives a more complete view of trade-offs and policy.
2 QUESTIONS FOR REVIEW (Key prompts you should be able to address)
What is scarcity, and how does it drive choice?
How does the PPC illustrate opportunity costs and trade-offs?
Distinguish capital vs. consumer goods and their impact on growth.
What are the main differences between mainstream economics and political economy in their treatment of scarcity and choice?
How can political economists broaden the analysis beyond traditional cost-benefit frameworks?
How do ethical, cultural, and power relations shape economic outcomes?
3 The evolution of pre-capitalist economic systems
Part II: The evolution of economic ideas and systems examines traditional, slave-based, feudal, mercantilist systems and the rise of capitalism.
The aim is to understand how economic systems emerge, transform, and interact with social structures and institutions.
3.0 CHAPTER 3 LEARNING GOALS
After reading this chapter you should be able to:
Outline the main characteristics of traditional (hunter-gatherer), slave-based empires (Rome), feudalism, and mercantilism; identify common threads and major differences.
Analyze the role of tradition, authority, markets, specialization of labor, and surplus production in each system.
Explain how cooperation, redistribution, and reciprocity supported survival in hunter-gatherer and other systems.
Describe social classes and private property across these systems.
List major forces eroding each system and promoting the shift toward the next.
The analysis uses Polanyi’s framework (surplus, markets, and social protection) and integrates recent economic anthropology and related fields.
3.1 TRADITIONAL ECONOMIES: ANCIENT HUNTER-GATHERER SOCIETIES
Core features:
Small, egalitarian, self-sufficient groups; high reciprocity and redistribution; cooperative survival.
Limited specialization due to subsistence needs; technology limited by lack of surplus.
Social status tied to productivity; leadership often based on proven contribution rather than coercive power.
Direct democracy or consensus-like governance in many cases; long-term survival shaped by group norms.
Redistribution/reciprocity:
The Bergdama example: sharing meat among hunters; survival depends on community support.
Gift exchange (Mauss) as a status display in some contexts; social status linked to productivity.
Role of culture: status-seeking exists in hunter-gatherer societies as it does in other economic systems; tradition ensures knowledge transfer and task allocation.
Theory: traditional economies emphasize communal patterns; knowledge and skills passed down through social relationships; technology evolves slowly due to limited surplus.
Specialization emerges with larger groups as surplus grows; larger groups enable more division of labor and increased productivity.
3.2 AGRICULTURE AND THE ESTABLISHMENT OF CITIES, SOCIAL CLASSES, AND SLAVE-BASED EMPIRES
Agricultural revolution (approx. 12,000 years ago) increased surplus, enabling population growth and urbanization.
Consequences:
Emergence of private property rights and a social hierarchy with kings, priests, and elites controlling the surplus.
Surplus funds governance, religious institutions, and warfare; building public goods like irrigation and monumental architecture.
Emergence of social classes and gendered division of labor; peasants primarily farm; elites control land and resources.
Surplus as a driver of power:
Surplus supports armies, temples, and bureaucracies; surplus also funds crafts specialized in urban centers.
Property rights emerge as a way to protect and monetize surplus production, enabling long-term investment and governance structures.
The rise of government to provide public goods and rule-enforcement; religion often legitimizes hierarchy and property rights.
Gender roles shift as property rights and warfare influence social norms, often diminishing women’s political and economic power relative to hunter-gatherer societies.
3.3 THE ECONOMIC SYSTEM OF THE ROMAN EMPIRE
Large slave-based economy with centralized state power and provincial control.
Structure:
Emperor and elite (patricians) atop the social ladder; plebeians and freed slaves form the broad base; slaves comprise a large labor force.
Most productive work done by slaves; a small elite controls land, taxes, trade, and the state.
Markets and trade:
Markets were relatively limited; most resources allocated through tradition and authority; luxury goods and military/state needs dominated.
Welfare-like state support, including grain subsidies to reduce civil strife.
Gender dynamics:
Women’s social status declined relative to patriarchal norms; male inheritance and property succession reinforced male dominance.
Decline factors:
Slavery and elite control hindered productivity; the army’s power waned; reliance on slave labor reduced innovation; population pressures and fewer conquered lands reduced slave supply.
3.4 FEUDALISM AND THE MANOR ECONOMY IN WESTERN EUROPE
Feudalism centered on self-sufficient manors controlled by lords; serfs worked the land in exchange for protection and limited rights.
Social structure and institutions:
Lords as major landowners; serfs bound to land; limited mobility; local governance within manors.
Guilds regulated production in towns; innovation constrained by guild rules; apprentices and journeymen under guild masters.
Markets and religion:
Trade was limited within manors; cities existed but were constrained by feudal obligations; churches owned substantial land and influenced behavior with religious doctrine (e.g., just price).
Moneylending was condemned by Catholicism; Jews often engaged in moneylending due to restrictions elsewhere.
Innovation and change:
Limited technological progress; major innovations were rare; stability and safety valued over experimentation.
Social and economic stagnation:
Surplus largely channeled to lords and the church; status and wealth tied to land and religious authority.
3.5 THE FORCES BEHIND THE DECLINE OF FEUDALISM AND THE RISE OF MARKETS
Key forces pushing toward market economies:
Increases in agricultural surplus due to better technology and crop rotation (e.g., three-field system) → population growth and urbanization.
Urbanization and specialization: towns regulated by local authorities; local trade increased; long-distance trade developed with merchants.
Long-distance trade and traveling merchants; rise of permanent markets and banking; development of modern market institutions.
Crusades and exposure to different commercial cultures; outward orientation of Europe.
Rise of the nation-state and commercial interests; centralization of power; expansion of kingdoms.
Exploration and colonization; access to new resources and wealth; acceleration of trade networks.
Protestantism and the ideology of individual calling, wealth accumulation as signs of doing God's work; capitalism-friendly attitudes spread in Protestant-majority regions (e.g., England).
The putting-out system and early capitalist factories; decline of guilds and rise of wage-labor; merchant-capitalists organize production and markets.
Monetization of the economy and the decline of the manor; switch from in-kind to monetary rents; gold inflows increase price levels; population shifts from rural to urban centers.
Enclosure movement: privatization of common lands; labor and land become markets; many peasants lose land and move to cities; increases wage labor and market for land.
Consequences for political economy:
Emergence of capitalism as a dominant mode of production; market exchange and private property become central.
3.6 MERCANTILISM AND THE UNEASY BEGINNINGS OF CAPITALISM
Mercantilism was state-directed, national capitalism that aimed to maximize exports and accumulate precious metals (bullionism).
Mechanisms:
Monopolies granted to trading companies; heavy regulation of trade to maximize profits for the state and merchant-capitalists.
Colonial empires supplied raw materials and slaves; markets opened for gold/silver inflows; states subsidized exports and restricted imports.
The Transatlantic Slave Trade and global commodity flows (sugar, coffee, tobacco, cotton) enriched European economies while exploiting colonies.
Institutions and power:
Merchant-capitalists and monarchs dominated economic policy; early forms of corporate power and state-business alliances.
Limitations and ultimate transition:
Mercantilism benefited a narrow elite; it also stifled broader market development and innovation; over time, internal resistance and rising capitalists pushed toward freer markets.
Adam Smith and the rise of capitalism:
The late 18th century marked a shift toward lighter regulation and market-based organization, setting the stage for modern capitalism.
3.7 CONCLUSION
Evolution of economic systems from traditional hunter-gatherer economies to slave empires, to feudal manors, to mercantilist capitalism, culminating in the rise of capitalist market economies.
Across all systems, surplus production, labor division, and the management of resources were central to growth or stagnation.
The period marks a shift from tradition and authority toward market mechanisms and private property, though social and institutional factors remained crucial in shaping outcomes.
QUESTIONS FOR REVIEW (Chapter 3)
What factors determined who did which jobs in traditional, slave-based, feudal, and mercantilist systems?
Why do political economists think humans are inherently social beings with strong group identity? Is there evidence in economic history?
Describe the roles played by tradition, authority, and markets across traditional, slave-based, feudal, and mercantilist systems.
How did the role and status of women change as economic systems evolved from traditional economies to feudalism?
Why is specialization of labor important for understanding historical economic development?
How does surplus generation and allocation influence economic growth and stagnation?
Argue for or against the statement that all human societies involve cooperation, redistribution, and reciprocity; support with examples.
List the main social classes in each system: (a) traditional hunter-gatherer, (b) Roman Empire, (c) feudalism, (d) mercantilism.
How did social classes evolve, and how did status determination change over time?
How did private property’s role evolve through these systems?
How did attitudes toward greed change as economic systems evolved?
Identify major forces eroding feudalism and paving the way for mercantilism, with specific examples.
Argue which two factors were most important in eroding feudalism and promoting mercantilism; support with concrete examples.
3.8 NOTES ON FIGURES AND KEY TERMS (Referenced in the text)
PPC (Production Possibilities Curve): used to illustrate scarcity, trade-offs, and opportunity costs; two goods: defense and education in the example; points A–D; resource specialization causes a concave curve; shifts outward with more resources/technology; shifts inward with negative shocks.
Key equations from PPC example:
From A to B: 5D = 60E \,\Rightarrow\, 1D = \frac{1}{12}E \,\text{and}\, 1D = 12E.
From B to C: 15D = 30E \,\Rightarrow\, 1D = \frac{1}{2}E \,\Rightarrow\, 1D = 2E.
From C to D: 20D = 10E \,\Rightarrow\, 1D = \frac{1}{2}E.
Economic Growth expression: ext{Economic Growth} = \Delta L + \Delta K + \Delta(\text{Productivity}).
The ten schools of economic thought cover a spectrum from conservative to radical; see Figure 1.3 in the text for the table of methodology and strengths.
Key historical figures and ideas:
Adam Smith (laissez-faire roots, capitalism)
Karl Marx (radical critique of capitalism)
Thorstein Veblen (institutional/evolutionary critique of monopolies)
John Maynard Keynes (regulated capitalism; macro policy)
Friedrich Hayek (opposition to excessive government intervention)