History of Economic Thought: A Critical Perspective 3rd Edition E

McCallum’s chapter in Handbook of Macroeconomics stressed the importance of robustness of policy rules and explored the distinction between rules and discretion using the time inconsistency principles. His survey also clarified important theoretical issues such as uniqueness and determinacy, and he reviewed research on alternative targets and instruments including both money supply and interest rate instruments. We focus on policy rules where the interest rate rather than the money supply is the policy instrument, and we place more emphasis on the historical performance of policy rules reflecting the experience of the dozen years since McCallum wrote his findings.

• In 1939 Russian economist Leonid Kantorovich (1912–1986) developed Linear Programming for the optimal allocation of resources, receiving the 1975 Nobel Economics Prize.
• Furthermore, extra labor would be employed leading to an increase in the cost of wages across the board, and therefore reducing exports and profits coming from overseas business.
• Early in the twentieth century Irving Fisher and Knut Wicksell were again proposing monetary policy rules to avoid monetary excesses of the kinds that led to hyperinflation following World War I or seemed to be causing the Great Depression.
• “Positive economics” became the term created to describe certain trends and “laws” of economics that could be objectively observed and described in a value-free way, separate from “normative economic” evaluations and judgments.

Smith’s vision of a free market economy, based on secure property, capital accumulation, widening markets and a division of labour contrasted with the mercantilist tendency to attempt to “regulate all evil human actions.”[46] Smith believed there were precisely three legitimate functions of government. When the butchers, the brewers and the bakers acted under the restraint of an open market economy, their pursuit of self-interest, thought Smith, paradoxically drives the process to correct real life prices to their just values. Dudley North (1641–1691) was a wealthy merchant and landowner who worked for Her Majesty’s Treasury and opposed most mercantile policy. His Discourses upon trade (1691), published anonymously, argued against assuming a need for a favorable balance of trade.

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Berle served in President Franklin Delano Roosevelt’s administration through the Great Depression as a key member of his Brain Trust, developing many New Deal policies. Saint Antoninus of Florence (1389–1459), O.P., was an Italian Dominican friar, who became Archbishop of Florence. Antoninus’ writings address social and economic development and argued that the state has a duty to intervene in mercantile affairs for the common good, and an obligation to help the poor and needy. In his primary work, “summa theologica” he was mainly concerned about price, justice and capital theory.

The business cycle, booms and busts, anti-inflation measures, and mortgage interest rates are outgrowths of economics. Balancing out the mathematical modeling approach is the study of factors that are more difficult to quantify but crucial to understand—most notably, the foibles and unpredictability of human psychology. Similarly disenchanted with regulation on trade inspired by mercantilism, the Frenchman Vincent de Gournay (1712–1759) reputedly asked why it was so hard to laissez faire (“let it be”), laissez passer (“let it pass”), advocating free enterprise and free trade. He was one of the early physiocrats (named from a Greek-based coined word meaning “government of nature”), who regarded agriculture as the source of wealth.

• What has made this work into a social science classic, however, are its two remaining parts with their discussion of capitalism (part II) and the nature of democracy (part IV).
• This conception of economics led to important new insights about the stability of markets and the capitalist economic system.
• The workable policy conclusion was that securing full employment could be traded-off against higher inflation.
• The inherent tension between neoclassical microeconomics (which portrays free markets as efficient and beneficial) and Keynesian macroeconomics—which views markets as inherently prone to catastrophic failure—has led to persistent academic and public policy disagreements, with different theories ascendant at different times.

Changes in economic thought have always accompanied changes in the economy, just as changes in economic thought can propel change in economic policy. Economic thought has at times focused on the aspects of human nature such as greed and selfishness that generally work against the good of all; at other times, economic behavior has been seen as self-regulating and working toward a common purpose. As contemporary economic thought deals with the issues of globalization and the emergence of a global economy, economists have turned to the multitude of other disciplines which, like economics, developed independently. Building on their discoveries, and united with them in pursuit of the common goal of benefiting human society, economic thought may be on the road to achieving a new level of understanding. Instead of focusing on whether the motivation was charity or justice, the more important reason why the Elizabethan Poor Laws, or Chanakya’s famine relief policy, did not constitute a comprehensive antipoverty policy is that these policies were unlikely to change the steady-state distribution of the levels of wealth. In terms of the model in Section 22.2, what these policies were doing was preventing the consumption levels of those either stuck in the wealth poverty trap or settled at some low steady-state level of wealth from falling too much.

American cliometric economists Douglass Cecil North (1920–2015) and Robert William Fogel (1926–2013) were awarded the 1993 Nobel Economics Prize. In contrast to Galbraith’s linguistic style, the post-war economics profession began to synthesize much of Keynes’ work with mathematical representations. Introductory university economics courses began to present economic theory as a unified whole in what is referred to as the neoclassical synthesis. “Positive economics” became the term created to describe certain trends and “laws” of economics that could be objectively observed and described in a value-free way, separate from “normative economic” evaluations and judgments.

A Revival of Philosophy of Mathematics for Economics?

In medieval times, scholars like Thomas Aquinas argued that it was a moral obligation of businesses to sell goods at a just price. Economic thought evolved through feudalism in the Middle Ages to mercantilist theory in the Renaissance, when people were concerned to orient trade policy to further the national interest. The modern political economy of Adam Smith appeared during the industrial revolution, when technological advancement, global exploration, and material opulence that had previously been unimaginable was becoming a reality. Alfred Eichner (1937–1988) was an American post-Keynesian economist who challenged the neoclassical price mechanism and asserted that prices are not set through supply and demand but rather through mark-up pricing. Eichner is one of the founders of the post-Keynesian school of economics and was a professor at Rutgers University at the time of his death. Eichner’s writings and advocacy of thought, differed with the theories of John Maynard Keynes, who was an advocate of government intervention in the free market and proponent of public spending to increase employment.

Walras and the Lausanne school

During the war, production in Britain, Germany, and France was switched to the military. In 1917 Russia crumbled into revolution led by Vladimir Lenin and who promoted Marxist theory and collectivized the means of production. Also in 1917 the United States of America entered the war Allies (France and Britain), with President Woodrow Wilson claiming https://1investing.in/ to be “making the world safe for democracy”, devising a peace plan of Fourteen Points. In 1918 Germany launched a spring offensive which failed, and as the allies counterattacked and more millions were slaughtered, Germany slid into the German Revolution, its interim government suing for peace on the basis of Wilson’s Fourteen Points.

John Stuart Mill

Essentially the central government instructed local parishes to deal with their poverty problem. As a system of protection, the Poor Laws were quite comprehensive and came to be reasonably generous in some places.15 Arguably the pinnacle of the Poor Laws was the Speenhamland System of 1795 introduced by the justices of Berkshire. This system aimed to ensure a guaranteed minimum income through a sliding scale of wage supplements indexed to the price of bread (Himmelfarb, 1984a; Montagu, 1971). It was not the last time in the history of thought about poverty that casual incentive arguments resting on little or no good evidence would buttress strong policy positions.

His more general attempt to tackle the question of how social and economic institutions are needed for an economic system to work properly has, however, remained unexplored. There also exists a certain tendency to cite catchy phrases from Schumpeter’s work without paying attention to their organic place in his arguments. It would appear that this brand of philosophical reflection will not be nurtured within the existing framework of the economics profession in the foreseeable future. A marginally more likely scenario is that a separate philosophical conversation will need to take place to build and sustain a tradition of rational assessment of the role and functions of mathematics in economic research and discourse. Perhaps a glimpse of the sort of philosophy which might perform this function may be provided by the recent work of David Corfield [2003]. This is the high level of isolation, to which scrutinizing some institutions and the historical context falls victim.

Schumpeter did not support the Nazis but like many conservatives felt that Communism constituted a more dangerous enemy than Hitler. Schumpeter’s intense hatred of Roosevelt, whom he suspected of being a socialist, also put him on a collision course with the academic community in Cambridge during World War II. In his diary Schumpeter expressed his ambivalence towards Hitler, Jews, Roosevelt and many other things; and in his everyday life he more and more withdrew into solitude and scholarship. In this sample plan the student specialized in ‘Agricultural economics’ and ‘Labor economics and industrial relations’. As you see, the idea of “unintended consequences,” usually as positive unintended consequences (the invisible hand idea) is a most general and virulent idea and metaphor of social economic thinking. Coursework is an integral part of all online courses and everyone enrolled will be expected to do coursework, but only those who have registered for credit will be awarded CATS points for completing work at the required standard.

Adding to the argument that it was undesirable to strive for a favourable balance of trade, Hume argued that it is, in any case, impossible. The module is designed to first present some of the main schools of thought from a historical and methodological perspective. The Wall Street Crash of 1929 was the dramatic end of what had been referred to as the “roaring twenties” in America. Many people, including economist Thorstein Veblen, cautioned against the excesses of “the American way,” warning of the tendency for wasteful consumption and the necessity of creating sound financial institutions.

But Keynes believed that in the 1930s, conditions necessitated public sector action. The core of the Austrian framework can be summarized as taking a “subjectivist approach to marginal economics,” and a focus on the idea that logical consistency of a theory is more important that any interpretation of empirical observations. Ricardo demonstrated mathematically that the gains from trade would outweigh the perceived advantages of protectionist policy. His law of comparative advantage revealed that even if one country is inferior at producing all of its goods than another, it may still benefit from opening its borders since the inflow of goods produced in another country more cheaply than at home results in a gain for domestic consumers. With the collapse of the Ancient world and the end of Roman civilization, economic discussion in Europe flagged as societies were cast under the shadow of the Dark Ages.