EC0 42 History of Economic Thought Professor Malamud BEH – Website: Office Hours:MW 11:30 – 12:30 pm; 2:30 – 3:30 pm; and by appointment

ECON 442 History of Economic Thought Professor Malamud, BEH 502 course outline: the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back…the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil. John Maynard Keynes, General Theory of Employment, Interest, and Money (1936) In the short-run, it is true, ideas are unimportant and ineffective, but in the long-run they can rule the world. Lionell Robbins, The Great Depression (1934).

J.R. Stanfield, The Economic Thought of Karl Polanyi, 1986 …the gearing of markets into a self-regulating system of tremendous power was not the result of any inherent tendency of markets…but rather of highly artificial stimulants administered…by state intervention. (Polanyi, 1944) Where did the ideas for intervention come from? Adam Smith…generalized the theory of market self-adjustment operating effectively…throughout the economic cosmos …domestically and internationally, micro-economically and macro- economically. It was Smith’s grand synthesis which articulated the self-regulating system of markets.* The Millian-Ricardian abstract method started from starkly unqualified assumptions…led immediately and inevitably to sharply laissez-faire doctrines. (Hutchison, 1978) [British economic advance] is a triumph of theory. We are governed by philosophers and political economists. (Senior,1851) This London…is the greatest practical illustration…of those principles which it is the business of the political economist to expound. (Cairnes, 1870) * Stanfield’s comment.

The Course History of Economic Thought History of Economic Doctrine History of Economic Theory History of Economics Economic History Some of Each

Contrasting World Views Harmony Natural Law Knowledge Rationality Laissez – faire Progress Chaos Ignorance Animal Spirits Authority Stasis

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

James B. Clark Medalists (subsequent Nobel Awards) 1947 Paul A. Samuelson (1970)Paul A. Samuelson 1949 Kenneth E. BouldingKenneth E. Boulding 1951 Milton Friedman (1976)Milton Friedman 1953 No Award 1955 James Tobin (1981)James Tobin 1957 Kenneth J. ArrowKenneth J. Arrow – (1972, with John R. Hicks)John R. Hicks 1959 Lawrence R. Klein (1980)Lawrence R. Klein 1961 Robert M. Solow (1987)Robert M. Solow 1963 Hendrik S. HouthakkerHendrik S. Houthakker 1965 Zvi GrilichesZvi Griliches 1967 Gary S. Becker (1992)Gary S. Becker 1969 Marc Leon NerloveMarc Leon Nerlove 1971 Dale W. JorgensonDale W. Jorgenson 1973 Franklin M. FisherFranklin M. Fisher 1975 Daniel McFaddenDaniel McFadden – (2000, with James J. Heckman)James J. Heckman 1977 Martin S. FeldsteinMartin S. Feldstein 1979 Joseph E. StiglitzJoseph E. Stiglitz – (2001, with George A. Akerlof and A. Michael Spence)George A. AkerlofA. Michael Spence 1981 A. Michael SpenceA. Michael Spence –(2001, with George A. Akerlof and Joseph E. Stiglitz)George A. AkerlofJoseph E. Stiglitz 1983 James J. HeckmanJames J. Heckman – (2000, with Daniel McFadden)Daniel McFadden 1985 Jerry A. HausmanJerry A. Hausman 1987 Sanford J. GrossmanSanford J. Grossman 1989 David M. KrepsDavid M. Kreps 1991 Paul R. Krugman (2008)Paul R. Krugman 1993 Lawrence H. SummersLawrence H. Summers 1995 David CardDavid Card 1997 Kevin M. MurphyKevin M. Murphy 1999 Andrei ShleiferAndrei Shleifer 2001 Matthew RabinMatthew Rabin 2003 Steven LevittSteven Levitt 2005 Daron AcemogluDaron Acemoglu 2007 Susan AtheySusan Athey 2009 Emmanuel SaezEmmanuel Saez 2010 Esther DufloEsther Duflo 2011 Jonathan Levin

Nobel Laureates in Economics: ces_in_Memory_of_Alfred_Nobel ces_in_Memory_of_Alfred_Nobel Nobel laureates in our course Paul Samuelson John Hicks Milton Friedman James Tobin Franco Modigliani Robert Solow Gary Becker Robert Lucas Finn Kydland/Edward Prescott Joseph Stiglitz...Paul Krugman

The Dismal Science as We Know It

Overarching Themes in Economic Thought Value  prices  microeconomics Distribution  factor prices Growth Macro-stability…and its discontents ‘flation BOOM and bust Economic Organization »Role of Market »Role of State

Wisdom of the Ancients Oikonomia: run harmonious households&communities 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 {good}  social stratification {  scientific breeding} Private property  acquisitiveness {bad}  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