Overarching Themes in Economic Thought Value  prices Distribution  factor prices Growth Stability Inflation Output Economic Organization »Role of Market »Role of State

Dominant Thoughts and Thinkers Time Span Individual Emphasis Laissez - faire Community Emphasis Social Role 1775 – 1800Adam Smith 1800 – 1825Ricardo - Malthus 1825 – 1850John Stuart Mill 1850 – 1875Karl Marx 1875 – 1900 Jevons / Walras /Marshall 1900 – 1925Wicksell – Fisher 1925 – 1950John Maynard Keynes 1950 – 1975Milton FriedmanPaul Samuelson 1975 – 2000Robert E. Lucas

Wisdom of the Ancients Heraclitus (~535 – 475 bc) Harmony thru conflict  Self – regulating market Pythagorus (~582 – 507 bc) Harmony thru numbers  Equilibrium Democritus (~460 – 370 bc) Diminishing marginal utility Time preference  present value

Plato (~427 – 347 bc): preserve the status quo “…the State is the soul writ large.” First principles: Human inequalities  division of labor  social stratification {  scientific breeding} Private property  acquisitiveness  turbulence Wealth  corruption

Plato’s Ideal Republic: A stationary state The elite: Communal property/communal women –Philosophers –Soldiers Shared Austerity Philosophers Soldiers (Response to scarcity) Workers Merchants Thinking Fighting Craving No incentive to advance Society parallels the mind …the State is the soul writ large

Aristotle (384 – 322 bc): focus on individual Human inequality  distributive justice …according to individual merit In opposition to Plato: Educate, don’t regulate Private Property > Communal Property Productivity  Progress Peace (communal property  quarrels) Pleasure in ownership Philanthropy (give your own stuff as you wish) But … Acquisitiveness for acquisitiveness sake is wrong Lending at interest is unnatural –Barren money shouldn’t earn money

Skipping a millennium or so… Medieval economics: preserve feudal status quo  Fixation on usury Escape clauses (per St. Thomas Aquinas) »“Damage suffered”  reward of waiting »“Escaped gain”  opportunity cost Rise of nation-state  Mercantilism  Fixation on gold (according to Smith)  Favorable balance of trade  Zero-sum view of economic life Colbert (French minister, late 17 th century): »REGULATION !!! Hamilton (American minister, late 18 th century) »Promote manufacturing via tariff

Transition from Mercantilism to Smith John Law (1671 – 1729) Money  Power … and paper money employs more people Innovated paper money backed by value of land (Note the circularity) Mississippi Company, 1717 (owned half of lower 48) A pyramid scheme that collapsed Lesson learned: monetary expansion  I N F L A T I O N David Hume (1711 – 1776) Price inertia  Short-run non-neutrality of money Spread of impacts from few merchants to economy in general Long-run neutrality of money »Specie flow mechanism Trade surplus self-destructs

Transition to Smith Richard Cantillon (1680? – 1734)…Essai, 1755 –Land theory of value … labor equated to land needed to maintain subsistence –Circular flow model of economic activity Landowners – ENTREPRENEURS – Workers Balance achieved by free market or by central planner –Monetary theory: anticipates Quantity Theory of Money Concept of velocity Dynamic effects of monetary injection: –Prosperity first  Stagflation later

Transition to Smith: The Physiocrats Fixation on agriculture Manufacturing & commerce sterile Champions of laissez – faire François Quesnay (1694 – 1774) –Physician to Mme. de Pompadour –Leader of group: disciples and associates including Mirabeau, Dupont, Turgot, … and Smith –Tableau Economique  an Input-Output table Zig – zag to balance flows Agriculture  increased wealth (counter to Colbert’s favoring mfg) Taxes ultimately borne by landlords  tax land rents directly Hoarding (of money) threatens economic stability Free trade/free competition most profitable for the nation