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Adam Smith is regarded by many economists as the founder of their field.
The dismal science
Economics
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Economic Systems

  $ Capitalism
  $ Communism
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Major Concepts
People
Not to be confused with the famous British magazine, The Economist.
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 influence, are usually the slaves of some defunct economist.
—John Maynard Keynes, The General Theory of Employment, Interest and Money, Chapter 24 - Concluding Notes

Economics is a social science dealing with the production, distribution, and consumption of goods and services.[1] Economics was originally a gentlemanly hobby and a relatively obscure research topic for a handful of academics but is a major branch of study today. While some economists conduct research and teach students at various universities around the world, most work in advisory roles in governments, or industry. Indeed, demand for the services of economists is essentially insatiable; there are virtually no governments, or international organization, without its own staff of economists.[2]

There are several main branches of economics. Microeconomics studies the behavior of individual consumers, producers and traders. Macroeconomics investigates the nature of the economy as a whole, taxation, the flow of investments, the level of income, among other aggregates. Other branches of economics include development economics, finance, labor, and international trade.[2]

Economics is an objective discipline. It aims at highlighting facts and causal relations. In line with this objective, several studies have shown a high level of consensus of economists on various issues - on average. The degree of consensus of economists in a field was also found to be positively correlated with the amount of evidence gathered in this field.[3][4] However, one should distinguish facts (what is) and political opinions (what should be). This is why, while agreeing on what the economy is, Economists can widely disagree on what the economy should be (the type of market that should be created by government, the role of state-owned-enterprises, fiscal policy, or tax), as it is an inherently political question.

History[edit]

The very first contributions to economics was rather philosophical and sometimes speculative in nature. It was much later on that the power of mathematics was brought to bear and later still, for empirical evidence to become an integral part of economic research.

Early economics[edit]

Thomas Mun was a merchant and an early economist living in the seventeenth century. Mun claimed that nations could become wealthy the way individuals and families do, by spending less than what they make, and that the importation of luxury goods was harmful to society, unless they could be re-exported, bringing more precious metals into the country. At that time, payments were made using precious metals. He supported foreign trade whenever it led to surpluses, and in order to generate and maintain such surpluses, Britain needed, he argued, to become self-sufficient, thereby reducing the need to import foreign goods. Mun recognized that having trade surpluses could cause domestic prices to increase to the loss of exports, and suggested a solution. New money were to be re-invested, especially to produce more goods that could be exported. In order to ensure product quality, Mun recommended the establishment of a trade council to regulate manufacturers. Mun was a member of a school of economics known as mercantilism. Mercantilism has largely fallen out of favor, as most economists later generally supported free trade.[5]

John Locke, a philosopher by trade, gave a philosophical justification for private ownership of property. He first assumed the uncontroversial position that people had a right to their own labor and the fruits of their labor. They could purchase land and combine their own labor with the land to produce goods. As long as there is plenty of land for others and provided the land is not spoiled after use, there is no problem at all. Since money is a product of labor, owning money is acceptable. Locke argued that the practical value of private property is that when allowed to accumulate private property, people become more productive. Contrary to religious doctrine at the time, which held people as altruistic, Locke viewed people as individuals acting according their their self-interests. Knowing how people behave, economic laws and principles could be formulated.[6]

Richard Cantillon pointed out the uncertain effect of money due to how it is produced and who gets it. If money goes to manufacturers and traders, there will be more production and investment. More production means prices will tend not to increase. But if money goes to landowners buying luxury goods, prices will go up. This known as the Cantillon effect.[7]

François Quesnay realized that the economy is an integrated set of interdependent components and constructed the very first economic model, the Tableau Économique. Quesnay divided the economy in three sectors: the agriculture sector, the manufacturing sector (which included what we now call the service sector), and the landowners, which produce nothing of economic value to profit from the surpluses made by the use of their land. Quesnay advised against taxing the agricultural and manufacturing sectors, because doing so would reduce their output. Instead, he argued that the landowners ought to be taxed. Quesnay wanted French agriculture to be modernized in order to improve efficiency. From his mathematical model, Quesnay concluded that hoarding wealth was bad for the economy because it reduced the flow of money and goods. A lack of demand reduces output and could lead to economic stagnation.[8][note 1]

According to David Hume, trade helped poor countries but did little harm to rich ones. In particular, trade enabled the former to grow and develop, allowing their standards of living to approach those of the latter. Hume identified the transfer of technology as one of the mechanisms behind this trend. Modern examples include South Korea, Taiwan, and Hong Kong. Meanwhile, international trade provides wealthier countries with export markets. Hume supported free trade and opposed mercantilism.[9]

Rise of capitalism and classical economics[edit]

In his famous work, The Wealth of Nations, Adam Smith laid out his vision of capitalism. Smith explained how individuals acting in their self-interests, namely, their natural tendency to buy and sell and to improve their material conditions, can result in the betterment of society. Writing at the dawn of the Industrial Revolution, he observed how mechanization and the division of labor can dramatically increase productivity. A worker specializing in a single or just a few tasks can become more and more skilled and efficient at that task. Time is saved when moving from one task to another.[10]

Smith recognized that there is, however, an important limitation to this. Products need markets. If the supply of a good is to be increased, the market for it has to expand. To this end, Smith supported free international trade, but not when national security is jeopardized. He rejected the popular "infant industry argument," which claimed that protective tariffs were necessary in a country that was just beginning to develop a particular industry, because new domestic firms were less knowledgeable and efficient than well-established foreign rivals. Smith opposed it on the grounds that it created inefficient monopolies that would consume scarce resources.[10]

Indeed, Smith considered monopolies to be the enemy of free trade. Monopolies charge high prices without offering higher quality. In the absence of competition, firms have little incentive to innovate and become more efficient. This leads to the misallocation of resources. Smith thought that monopolies were more likely than competitive firms to request and obtain government support, resulting in laws that make society as a whole worse off.[10]

Despite being considered by some as the patron saint of laissez-faire capitalism, Smith recognized the existence of externalities, and approved of government attempts to address them. An externality occurs when a party not involved in an economic transaction benefits from it or is harmed by it. Pollution is an example of a negative externality while education is an instance of a positive externality.[10]

Writing at a time when most taxes were regressive, taking more from the poor than the rich, Smith advocated for a flat tax, which would lessen the burden on the poor because everyone would pay the same percentage of their income. Today, many taxes, including income taxes, are progressive, taking a higher fraction from the rich than the poor. Smith wanted tax laws to be clear and not subject to frequent change. He held that it should be convenient for people to pay taxes and that the best taxes were the ones that cost the least to collect.[10]

Antoine Augustin Cournot brought calculus to economics.

Smith held that if a country were more efficient at producing a good, it would export that good to other countries. He called this absolute advantage. David Ricardo introduced a complementary notion known as comparative advantage, the relative efficiency of a country in producing a good, which he argued was more important. A country can be quite efficient at producing anything it needs, but it should focus on the things that it is the best at producing. All countries would benefit from international trade via specialization.[note 2] Although he was initially in favor of the division of labor and mechanization, Ricardo realized that investors could make more profits if they could employ more machines rather hiring more workers, leading to technological unemployment.[11]

Antoine Augustin Cournot was the first to introduce calculus into economic analysis with his Researches into the Mathematical Principles of the Theory of Wealth. Cournot was the first to draw the demand curve, noting that the higher the price of a given product, the lower the demand for it. He showed that an equilibrium point occurs when demand and supply are equal. If demand were higher, firms would eliminate that excess demand by raising prices. If demand were lower, firms would reduce excess supply by lowering prices. Cournot distinguished variable costs, such as raw materials, and labor, from fixed costs, such as insurance, and land rent. He defined marginal cost as how much it takes to produce one more unit of output and marginal revenue as the additional money gained by selling one extra unit of output.[note 3] He then proved that a monopolist could maximize profit by producing at a level where the marginal cost is equal to the marginal revenue.[note 4] Cournot then defined what lies at the opposite end of the spectrum from monopoly, perfect competition. In a perfectly competitive market, there is a large number of firms, and no restrictions on new firms entering the market (or old firms leaving it). Only in such a market are firms unable to manipulate prices by altering the supply.[12]

Socialism and the critiques of capitalism[edit]

Monument of Karl Marx (left) and Friedrich Engels in Berlin, Germany.

Perhaps more than anyone, Karl Marx understood the dark side of capitalism. With Friedrich Engels, Marx explored the problems of capitalism at length in The Communist Manifesto. According to Marx and Engels, capitalism alienates and exploits workers. They are alienated because of the dull repetitive work at the factory tuning out cheap goods, over which they have no control. Artists and craftsmen, in contrast, spend much time with their creations and are proud of their work. Unlike Adam Smith, Marx had a dim view of the division of labor, which considered to reduce work into simple monotonous tasks. Another reason for the alienation of workers is that much of the profits made go directly to the capitalists, who owned the means of production; workers only receive subsistence wages. Marx adopted the labor theory of value, which asserts that the price of a good depends on the amount of labor needed to make it.[13]

Capitalism exploits workers because, according to Marx and Engels, they create something of value but are not compensated the full value of their creations. Workers enrich their employers. Moreover, Marx observed that the capitalists had at their disposal different means to increase profits and thus the exploitation of workers. They could lengthen the working day, speed up the production line, or by reducing wages. However, Marx recognized how far each of these measures could go. People can only work for so long each day. Machines can only operate so fast, and wages can only go so low. Nonetheless, a competitive market forces firms to exploit workers for as much as possible to ensure their survival.[13]

Marx observed that capitalism was all about the unrelenting drive towards the concentration of economic power. Hence, all firms would strive towards becoming the monopoly of their industry. Monopolies could reap huge profits while a competitive market eats away profits. In other to outperform competitors, a firm must improve its productivity. Yet continued technological advances requires increasing amounts of capital. This means that in a competitive system, small and weak firms are eliminated or are absorbed by larger and stronger ones. Meanwhile, the technological enhancement of productivity necessarily causes unemployment, which keeps wages down and fuels social unrest.[13]

All this alienation and exploitation of the working class and the resulting social unrest, Marx thought, would lead to a class struggle between that class, who did not own the means of production, and the capitalists, who did. Marx believed such a struggle would lead to the downfall of capitalism, and the rise of socialism, a socioeconomic system in which workers owned the means of production and decided the working conditions, quality and quantity of production, wages, and other things.[13]

His negative views of capitalism did not prevent Marx from admitting the positive aspects of this economic system. Marx observed that primitive human societies consisted of hunter-gatherers. As people settled down and became farmers, they formed communities centered around agriculture, which paved the way for feudalism. In a feudal economy, landowners provided land and protection to the farmers in exchange for a fraction of agricultural output. Feudalism, in turns, gave way to capitalism when people began small-scale manufacturing and become business owners. Marx contended that capitalism improved people's standards of living and attracted workers to urban areas, away from "the idiocy of rural life." However, Marx saw capitalism was only one phase in the economic history of humanity. Yet he had little to say about how life would be after capitalism.[13]

In The Communist Manifesto, Marx and Engels advocated for a number of policies that could improve the living conditions of the working class under capitalism, such as free public libraries, free education, the abolition of child labor, progressive income tax, government control of communications and transportation infrastructure, and the establishment of a national bank.[note 5] However, they viewed these as mere stopgaps that could only delay the inevitable downfall of capitalism, whose nature they considered to be self-destructing. In the end, though, Marx has underestimated the flexibility of a capitalist system to introduce the necessary reforms in order to ensure its own survival and the ability of democratic governments to pass the necessary regulations to mollify the rough edges of capitalism.[13][note 6]

Equilibrium and Marginal Analysis[edit]

Several economists independently introduced the notion of marginal utility, or the satisfaction one gets from the last unit of good consume, and methodological individualism, or the belief that economic phenomena could be explained by considering individual behaviors. Economists have long recognized that one sector of the economy could affect another. But it was Léon Walras who first constructed a general equilibrium economic model, which represents the whole economy as a system of equations. Despite the major problems with this approach—for example, solutions to his system of equations could represent negative or zero prices, which do not exist in reality—, Walras succeeded in formalizing the notion of general equilibrium and showed economists that it was indeed possible to study the interrelated sectors of the economy simultaneously.[14]

Emergence of Austrian Economics[edit]

Carl Menger, founder of the Austrian School of Economics, was the first discover the law of diminishing marginal utility, which states that the utility derived from one unit of a good drops as the number consumed increases. In contrast to classical economists, Menger advocated for a subjective theory of value. According to this, the value of a good depends on how much people want it and find it useful, which is subjective, rather than on objective factors, such as the cost of production. For example, therefore, diamond is not inherently valuable; it has value only because of human desire. One implication of the subjective theory of value is the refutation of the labor theory of value (due to Ricardo) and thus Marxist economics. Menger also recognized the usefulness of the concept of marginal productivity, or how much utility to the customer is added by the new factor of production, such as a new worker. Quite naturally, then the Austrian school adopts methodological individualism. Another pillar of the Austrian school is the belief that knowledge in the field of economics may only be derived from assumptions that are known to be true.[15]

Eugen von Böhm-Bawerk noted that time is a crucial factor in business decisions and introduced the notion of roundabout production. His favorite example is getting drinking water from a spring. One could extract water by hand, by bucket, or by pipes. Each successive method is more roundabout, i.e., more expensive and more time consuming but yields more water in the end. In general, more advanced manufacturing assembly lines are more expensive and require more time to be set up but produce more goods in the long run. This notion carry an important insight: there is a trade-off between having things soon but in fewer number and having more things but in the future.[16]

Böhm-Bawerk also attempted to explain why real interest rates have to be positive. Nominal interest rates are those agreed to by the lender and the borrower; real interest rates measure the actual purchasing power of the repayment in the future. Mathematically, the real interest rate equals the nominal rate minus the rate of inflation. In the terms of Böhm-Bawerk, the real interest rate represents the future goods he has to give up in order to consume goods now. Böhm-Bawerk gave three reasons for the positivity of real interest rates. First, incomes tend to grow, so people should be willing to give up more money in the future in order to consume goods now. Second, people generally want to consume goods now because the future is uncertain, and thus have to be bribed in order to give up goods now in exchange for more in the future. Finally, roundabout production yield more goods, so borrowers should be willing to pay positive real interest rates. Both roundabout production and consumer time preferences influence the supply of money. Roundabout production is capital intensive and thus requires more money. If people are willing to delay immediate gratification, they are willing to lend money. If, on the other hand, people crave immediate gratification, a higher real rate of interest would result.[16]

Beginnings of monetary economics[edit]

Irving Fisher is the founder of monetary economics, the study of how money affects interest rates, inflation, and overall economic activity. Fisher defined capital as a stock of wealth at a point in time, similar to the pool of water at the bottom of a mountain. The flow of savings is then analogous to the waterfall bringing more water into the pool, adding to one's stock of wealth. He coined the term money illusion to refer the common confusion between the the raw amount of money and the actual purchasing power of that money. For example, higher wages usually lead to higher prices, yet workers are typically happy when they receive a pay raise, even though the purchasing power may not increase.[17]

Fisher analyzed interest rates in terms of supply and demand. On the supply side, if people are future-oriented, they will accept low interest rates and be willing to save rather than spend. But if they are present-oriented, they will demand higher interest rates because they would rather spend the money now. On the demand side, interest rates are determined by investment opportunities and by productivity. More investment opportunities and higher productivity leads to higher demand for borrowed money. The equilibrium rate of interest is therefore one at which the quantity of funds wanted by borrowers equals what the lenders are willing to give up. Fisher noted, however, that forces affecting the supply and demand for money are unstable. In addition to purely economic factors, supply and demand are also affected by habits, intelligence, self-control, and foresight.[17]

Fisher wrote down the now famous equation of exchange, which he used to identify the causes of price inflation. It is

MV = PQ,

where M is the money supply, V is the velocity of money (the number of times the unit of money is used in a year to purchase goods and services), P is the price, and Q the quantities. Multiplying the total money supply with the velocity of money of a country gives the gross domestic product of that country, which can then be divided in to price and quantity components.[17]

The Great Depression and Keynesian economics[edit]

Game theory and economic behavior[edit]

Stagflation and monetarism[edit]

Neoclassical economics[edit]

New Keynesianism[edit]

The growth of the 1990s and the early 2000s under the domination of monetarist ideas also helped to increase confidence. The 2007 financial crisis, and the ensuing real economy meltdown changed that. There is considerable debate on why the crisis occurred, but one of the more dominant explanations is that adopted by the FDIC in its publication Crisis and Response: An FDIC History, 2008–2013, which attributes the cause to a global savings glut, which increased the quantity of loanable funds, lowering interest rates.

As interest costs fell and, in response, the demand for mortgages increased, the funding for mortgages increased significantly, allowing lenders to offer credit to more borrowers. Behind this increase in funding were (1) a heavy demand of investors worldwide for highly rated assets with high yields, and (2) the satisfaction of that demand through the mortgage securitization process, which allowed the financialization of mortgage assets.

This, along with increased international ties and highly leveraged institutions, created significant systematic risk. That risk became visible when new statistics were introduced to measure subprime mortgage risk[19] and credit rating agencies initiated mass downgrades of securities in early 2007. This made many previously marketable securities practically worthless, making institutions holding those securities insolvent. That also created a significant negative wealth shock in home prices, suddenly making many households around the country poorer, directly influencing the real economy.

New Keynesianism, which focuses again on the role of demand, in a set of imperfect and subdivided goods and capital markets, took the fore (and the popular imagination) in arguing for immediate fiscal action. This was signed into law with stimulus bills in the 2007-2009 period. Government action around the world massively reduced interest rates and government spending. And from there, we step into the future, on which no history can be written.

Empiricism in economics[edit]

Fundamentals of economics[edit]

What represents a fundamental truth in economics can be difficult to determine, as many theories have proven difficult to test. However, there are some ideas accepted almost universally, except by cranks. Here are ten commonly accepted principles taken from the top-selling college economics textbook, Gregory Mankiw's Principles of Economics:[20]

  1. People face trade-offs
  2. The cost of something is what you give up to get it
  3. Rational people think at the margin
  4. People respond to incentives
  5. Trade can make everyone better off
  6. Markets are usually a good way to organize economic activity
  7. Governments can sometimes improve market outcomes
  8. A country's standard of living depends on its ability to produce goods and services
  9. Prices rise when the government prints too much money
  10. Society faces a short-run trade-off between inflation and unemployment

These touch on most of the major concepts and problems addressed in economics — the scarcity of capital, resources, and labor, the concept of absolute and comparative advantage that leads to trade, the use of the market as the basis of exchange, the disparity between rich and poor nations, inflation, and government intervention.

Strong assumptions and economics[edit]

Their definition of 'rational' is your definition of 'prophetic'.
— - Steve Keen[21]

The stronger an assumption, the less realistic it tends to be. The better the economic model, the more it relies on weak assumptions. Some assumptions made in specific areas of economics have come to be viewed as economic "fundamentals," mostly due to crankery and political hacks. Cranks make a big deal of these assumptions in order to create straw man arguments criticizing economists for making assumptions that any ordinary person knows is unrealistic. Often, the reality is that these issues have been the focus of much attention among economists, to the point where the finer details can be difficult to communicate. Other assertions come about as a way to defend certain political ideologies.

It should be kept in mind that many modern economists rarely deal in theoretical models, though they certainly capture the public imagination. Most dissertation or extremely long papers generally do massive amounts of empirical and statistical analysis to prove that some kind of effect exists. Then, a theory is introduced as a means to explain an effect that is observed by empirical analysis. There are lots of seminars in the academic world of economists. If you presented a model without empirical analysis showing the existence of the effect your model purports to explain, you'll be laughed out of the room.

These assumptions include:

  • Agents possess perfect information – A common assumption in the economic models presented to undergrads, but by no means accepted by economists as an accurate description of humanity. Outside of strawmanning in the realm of reality, modern economics routinely uses imperfect information models, and while introducing imperfect information often adds a level of strategic interaction to economic models that make them difficult to solve with elementary calculus, most graduate-level economic research dismisses perfect information models out of hand.
  • Agents are perfectly rational - An excellent example of the issues in using jargon. The definition of "rational" in economics, and in the rest of the world, are very different. Rationality in economics refers to the type of preferences a person exhibits, whereas the common usage of rationality describes the level of clarity present in ones thought. Certain fields of economic study, such as behavioral economics, have spent significant amounts of time testing the boundaries of this assumption.
  • Firms are perfectly competitive - Mostly a misconception by those that do not expand their economic education beyond Econ 101. Perfect competition is an assumption that, like the assumption of perfect information, eliminates a level of strategic interaction between agents and firms. Economists rarely think of this as a good description of markets, so many modern economic models, such as the macroeconomic models utilized in New Keynesian economics, utilize some form of monopolistic competition.
  • Government activity is always incompetent or harmful (including lowering taxes always raising tax revenue) - Many simplistic models of government taxation show that poorly executed taxes may lead to a dead weight loss for the economy. While this is sometimes true for marginal taxes, any losses caused by levying the tax should be weighed against the greater economic efficiency and social benefits they provide. In theory, Pigovian taxes, which are marginal taxes designed to offset the effect of negative externalities, can improve social welfare (and have been advocated across the political spectrum). Many other examples of welfare-improving government intervention exist.

Healthcare economics[edit]

Environmental economics[edit]

Pseudo-economics[edit]

A friend of mine once said: You know what the problem is with being an economist? Everyone has an opinion about the economy. No body goes up to a geologist and says, 'Igneous rocks are fucking bullshit.'[22]

A large and diverse body of crank economic ideas exists, ranging from people who still adhere to quaint and archaic theories of the past (see below) to those ideas which still enjoy widespread popularity today, such as name it and claim it (aka. God will make you rich), pyramid schemes, and esoteric conspiracy theories about the Federal Reserve. The Liberty Dollar is a cranky libertarian scheme to set up a competing private-minted currency. Bitcoin is much the same.

Other notions such as the Laffer Curve are valid economic theories. However, ideas like the Laffer curve (i.e. that at a certain high level of taxation, government revenues can increase by lowering income taxes, due to expansion of the tax base) have been long misapplied by some who don't have a full understanding of these theories. This is especially the case when empirical research into the Laffer curve puts the point at which lowering taxes can increase revenue somewhere near 70 per cent. Often solid economic thought is twisted to fit a political agenda. Taxation and government intervention are two common targets.

Schools of thought[edit]

Mercantilism[edit]

Classical economics[edit]

Keynesian economics[edit]

Post-Keynesian economics[edit]

Monetarism[edit]

New Keynesian economics[edit]

Neoclassical economics[edit]

Professor Chang's one-sentence schools guide[edit]

  • Classical: The market keeps all producers alert through competition, so leave it alone.
  • Neoclassical: Individuals know what they are doing, so leave them alone -except when markets malfunction.
  • Marxist: Capitalism is a powerful vehicle for economic progress, but it will collapse, as private property ownership becomes an obstacle to further progress.
  • Developmentalist: Backward economies can't develop if they leave things entirely to the market.
  • Austrian: No one knows enough, so leave everything alone.
  • (Neo-)Schumpeterian: Capitalism is a powerful vehicle of economic progress, but it will atrophy, as firms become larger and more bureaucratic.
  • Keynesian: What is good for individuals may not be good for the whole economy.
  • Institutionalist: Individuals are products of their society, even though they may change its rules.
  • Behaviouralist: We are not smart enough, so we need to deliberately constrain our own freedom of choice through rules.[23]

Archaic ideas that still get brought up occasionally[edit]

  • Austrian school: A school of economic thought from the early 20th century which rejects empirical testing in favor of narrative 'praxeology' aka the fantasy football of economics. That's the wonder of the Austrian Preschool, you can skip learning nasty mathematics and get right to praxing out whatever you wish. Overall, they're just highly-paid fortune tellers.
  • Bitcoin: Everyone outside the echo chamber has long realized that it offers no advantages over traditional currency. The notable exception being illegal transactions. That's the only thing, other than rampant speculation, keeping it alive—for now. Criminals have already started looking for solutions that offer real anonymity.
  • Chicago school: Also known as fresh-water economics to distinguish it from salt-water economics, practiced by those living near or on the U.S. coasts, a school of economic thought associated with Milton Friedman and his followers at the University of Chicago that emphasizes the role of money (monetarism). This distinction is now outdated, since the adherents of both the Keynesian and Chicago schools have adopted each others' ideas.
  • Cyclical theory: Trying to predict how the stock market will go in the future by the Kondratiev Wave or Elliott Wave.
  • Distributism: A failed attempt at forming a new economic ideology in line with Catholic social justice ideas, using an 1891 Papal encyclical as the basis; comes out something similar to the more recent "back to the land" sentiments.
  • Galambosianism: Intellectual property rights taken to its absolute, and absurd, conclusion.
  • Georgism: A belief that income gained purely from extraction of natural resources and monopoly over properties of nature should belong to society in common, but that income from things created by labor and investment should ideally be kept private. Problematic in that it still requires inputs and investments to extract things from nature. Basically, there is no clear line.
  • Goldbuggery: A belief that fiat currency is responsible for most contemporary economic ailments, and that currency ought to be backed by a commodity, namely gold. Variations of this doctrine replace gold with other commodities (oil, for example) while exhibiting the same basic mindset. Practically no reputable economist will support this, simply because of the lack of control on the money supply and the reality that growth will cause deflation (devaluing money and reducing incentives to spend it, thereby reducing aggregate demand).
  • Laissez-faire: Almost no economists still hold to this, if only because of the understanding that the government needs to deal with externalities. Moreover, a perfect free market depends on perfect information, and people are ignorant, as any person who walks around a given city for a few hours can discern.
  • Lyndon LaRouche's ideas. They involve quite a lot of protectionism (i.e., 19th century economic thought)[24] and a harsh attack on globalism, the IMF, or anything else developed in your lifetime. He also has a rather hilarious hatred of both corporate interests and international institutions while supporting constant government intervention, then saying that governmental intervention is fascist.
  • Marxism: The original Marxist economic theory was based on 19th-century concepts such as the labor theory of valueWikipedia's W.svg and the tendency of the rate of profit to fall.Wikipedia's W.svg Due to the cultish persistence of Marxism, these ideas still get brought up frequently.
  • Social Credit: C. H. Douglas unveils the mysteries of consumer power using complicated mathematical formulas, like consumers exercising their power at the marketplace will direct the behavior of producers. Ya think?
  • The Townsend Plan: Nobody seriously advocates this today (chiefly because a more workable, non-insane version was eventually created in the form of Social Security), but it is occasionally mentioned as an example of the economic woo schemes that flourished during the Great Depression.

See also[edit]

External links[edit]

Notes[edit]

  1. Quesney is widely respected today. Mathematical economists admire him for constructing the first mathematical model of the economy. Conservative economists support his opposition to taxes on the productive elements of the economy. Liberal economists consider him to be a forerunner of John Maynard Keynes because he recognized how spending could counter economic decline. Even Karl Marx praised Quesnay for realizing how surpluses enable capitalist economies grow.
  2. One could think of this as an extension of Adam Smith's notion of division of labor.
  3. For the mathematically inclined, these are the derivatives of the cost and revenue functions, respectively.
  4. Let P be the profit, R be the revenue, C be the cost and x be the amount of output. Then  P(x) = R(x) - C(x). In order to maximize profit, we must have P'(x) = R'(x) - C'(x) = 0, meaning R'(x) = C'(x), which was to be demonstrated.
  5. These things are now standard in a developed capitalist economy.
  6. Indeed, it was a fervent opponent of socialism, Otto von Bismarck, who invented the welfare state, which includes universal health coverage.

References[edit]

  1. Economics. Merriam-Webster Online Dictionary. Accessed December 25, 2018.
  2. 2.0 2.1 Economics. The Encyclopedia Britannica. Accessed December 25, 2018.
  3. https://pdfs.semanticscholar.org/83dc/c4b32dc9780449e64641d7b79b1c72ecd618.pdf
  4. http://freakonomics.com/2012/07/25/the-secret-consensus-among-economists/
  5. Pressman, Steven. Fifty Major Economists. "Thomas Mun (1571-1641)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  6. Pressman, Steven. Fifty Major Economists. "John Locke (1632-1704)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  7. Pressman, Steven. Fifty Major Economists. "Richard Cantillon (1687?-1734?)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  8. Pressman, Steven. Fifty Major Economists. "François Quesnay (1694-1774)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  9. Pressman, Steven. Fifty Major Economists. "David Hume (1611-1776)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  10. 10.0 10.1 10.2 10.3 10.4 Pressman, Steven. Fifty Major Economists. "Adam Smith (1623-1790)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  11. Pressman, Steven. Fifty Major Economists. "David Ricardo (1772-1823)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  12. Pressman, Steven. Fifty Major Economists. "Antoine Augustin Cournot (1806-1873)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  13. 13.0 13.1 13.2 13.3 13.4 13.5 Pressman, Steven. Fifty Major Economists. "Karl Marx (1818-1883)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  14. Pressman, Steven. Fifty Major Economists. "Léon Walras (1834-1910)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  15. Pressman, Steven. Fifty Major Economists. "Carl Menger (1840-1921)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  16. 16.0 16.1 Pressman, Steven. Fifty Major Economists. "Eugen von Böhm-Bawerk (1851-1914)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  17. 17.0 17.1 17.2 Pressman, Steven. Fifty Major Economists. "Irving Fisher (1867-1947)." 2nd ed., Routledge, 2006. ISBN 0-415-36649-6.
  18. Crisis and Response: An FDIC History, 2008–2013, https://www.fdic.gov/bank/historical/crisis/chap1.pdf, page 9
  19. Crisis and Response: An FDIC History, 2008–2013, https://www.fdic.gov/bank/historical/crisis/chap1.pdf, page 20
  20. 10 Principles of Economics, Wikiuniversity
  21. Steve Keen, Understanding Economics featuring Dr. Steve Keen - Part 2 of 4 8:50
  22. https://www.reddit.com/r/badeconomics
  23. Ha-Joon Chang, Economics: The User's Guide (London, 2014) pp.115, 120, 127, 133, 138, 142, 145, 151, 156
  24. "LaRouche Advises Democrats On What They Must Do"
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