1. 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

2. 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

3. 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

4. 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

5. 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

6. Skipping a millennium or so… Medieval economics…Scholastics: Preserve feudal status quo  fixation on usury –Escape clauses (per St. Thomas Aquinas) “Damage suffered”  reward of waiting “Escaped gain”  opportunity cost –Salamanca school: “Just price”  Natural price  Supply – Demand Renaissance Nation-state Mercantilism: Build internal market! Policy… theory  Fixation on gold (according to Smith) {Money  Credit…Money  Capitalism/Keeping Score}  Favorable balance of trade  Zero-sum view of economic life –William Petty (English landlord, mid 17 th century): Anticipations of Keynes: Jobs, jobs, jobs –Colbert (French minister, late 17 th century): REGULATE!!! –Hamilton (American minister, late 18 th century) »Promote manufacturing via tariff

7. 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 Inflation  capitalist profits first  expansion  progress Long-run neutrality of money »Specie flow mechanism Trade surplus self-destructs

8. Transition to Smith Richard Cantillon(1680? – 1734?): Patron saint of Austrian Econ …Essai, 1755/1880: “The cradle of political economy” (Jevons) –Land theory of value … labor equated to land needed to maintain subsistence: market price reverts to value Circular flow model of economic activity Landowners – ENTREPRENEURS – Workers Balance achieved by free market … or by central planner Estimates of flows  precursor of NI accounts –Monetary theory: anticipates Quantity Theory of Money Concept of velocity Dynamic effects of monetary injection: –Income effect  Increase spending  Increased price –Prosperity first  Stagflation later … Austrian flavor

9. Transition to Smith: The Physiocrats Fixation on agriculture – Manufacturing & commerce sterile Champions of laissez – faire What would you do if you were king? François Quesnay (1694 – 1774) … “nothing” –Physician to Mme. de Pompadour –Leader of group: disciples and associates including Mirabeau, Dupont, Turgot, … and Smith –Tableau Economique  an Input-Output table Initially: Landlord has cash; farmer has grain; artisan has stock of goods Landlord buys and food and manufactures 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 The tableau: http://homepage.newschool.edu/het//essays/youth/tableauoverview.htm#summary http://homepage.newschool.edu/het//essays/youth/tableauoverview.htm#summary