History of Economic Thought

Lecture Notes

Israelite economics, Moses 1300 BC

10% tithe to the Levites

poor cld take gleanings from field & part of tithe

God owned the land; households have joint tenancy w/ God.

if you give something to a craftsman to repair, and he breaks it, he owes compensation.

people must perform obligations of a contract.

sabbath day of rest & religion

Leviticus: 50 year law of jubilee; prevents large estates

Abu Said ibn Khaldun, Arab, 1332-1406

historian, sociologist and economist

held government positions

President Reagan cited Khaldun as supporting the view that a reduction of tax rates generates larger tax revenues - Laffer curve

human geography complements historical sociology.

François Quesnay (1694-1774) physician

Physiocracy means the rule of nature.

When the natural order is disrupted, poverty results.

French tradition from Descartes of deductive reasoning.

There is a natural harmony of individual interests.

Motto: laissez faire, laissez passer.

Private property is the basis for the natural order.

The right to own property is derived from labor.

Policy proposal: free trade and a single tax on net product.

The first theory of economic development.

Use rent for investment in infrastructure.

Adam Smith (1723-90) philospher, economist, professor.

Spent 3 years in France and met the physiocrats.

books: Wealth of Nations 1776,

Theory of Moral Sentiments 1759, 1790.

p. 477: he intends his own gain, and is led by an invisible hand to promote an end which was no part of his intention.

politicians don't have the wisdom or knowledge to alter it.

Landlords reap where they never sowed.

David Ricardo 1772-1823

Principles of Political Economy and Taxation, 1817

Introduced abstract models - pure theory

Corn is not high because a rent is paid, but a rent is paid because corn is high.

Rent is a surplus that accrues to the owner of land superior to that at the margin of production.

Comparative advantage.

Jane Marcet 1769-1858

Conversations on Political Economy, in which the Elements of that Science are familiarly explained. 1816. 464 pages.

Frédéric Bastiat 1801-50 p. 14

Advocate of laissez faire.

Used satire and irony.

Known for "petition of the candlemakers".

What is seen and not seen.

Henry George 1839-1897 b. Philadelphia, moved to SF & NY.

Progress and Poverty, 1879.

Social Problems, 1883.

Protection or Free Trade, 1887

Science of Political Economy, unfinished, 1897

Wanted to know why poverty persisted amidst increasing wealth.

Advantages of progress go to the landowner.

Rent be taxed and labor and capital untaxed

Taxing rent would also reduce business cycles.

Karl Marx 1818-1883

1848, Communist Manifesto w/ Engels.

Workers of the World, Unite!

"The history of society is the history of class struggle.

Das Kapital. Surplus product.

Carl Menger 1840-1921

Founder of the Austrian school.

1871, Principles of Economics.

Menger stressed the subjective nature of utility.

Menger the first to distinguish between free and economic goods based on scarcity.

marketable commodities became money.

Alfred Marshall 1842-1924

Founder of partial equilibrium and supply & demand analysis.

Supply and demand analysis.

Principles of Economics1890. Theory developed much earlier.

Knut Wicksell 1851-1926, Swedish (Blaug before)

Contributed to public finance, cycle, monetary theory.

Government can be productive if it adheres to the market rules of property and contract.

The ideal government has unanimous consent, or close to it.

Natural and market rate of interest.

John Maynard Keynes 1883-1946

1936, General Theory of Employment, Interest and Money

Demand-side management a policy tool.

Ludwig von Mises, 1881-1973 Austrian

1912, Theory of Money and Credit; also business cycles.

1920 article, "Economic Calculation in a Socialist Commonwealth." Then 1922 book Socialism.

An efficient allocation of resources not possible under socialism. No economic calculation.

No private factor markets or capital markets.

Every step away from private ownership takes us farther from rational economics.

1966 Human Action

Friedrich von Hayek 1889-1992 Nobel 1974

The decentralized nature of knowledge.

student of Mises.

Ronald Coase 1910- UK, then US Nobel 1991

Two famous articles.

1937, The Nature of the Firm. : Why do firms exist?

Firms develop because transaction costs of market are high.

Replaces market with hierarchical organization.

1960, The Problem of Social Cost.

Coase: if transaction costs low, parties can negotiate.

Doesn't matter where property rights are for efficiency.

Milton Friedman 1912- US Nobel 1976

Monetarist - quantity theory of money.

Great Depression made worse by Fed not increasing money.

1980 book and TV series "free to choose".

Becker, Gary 1930- US Nobel 1992 Chicago

dissertation 1957 The Economics of Discrimination

1964, Human Capital. 1968 Economics of Crime.

1965, A Theory of the Allocation of Time. Family.

Applied: economizing, stable preferences, equilibrium to many topics.

Crime, children as durable goods, the market for marriage.

Marriage: a mutual bilateral monopoly. We get firm-specific capital goods.

Decline of marriage in the US: decline of household production.

Drop in infant mortality, want fewer children.

Less firm-specific capital goods.