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Exploring Economic Thought: Value, Prices, and the Role of Market and State Through History

This comprehensive analysis delves into the evolution of economic thought from ancient philosophies to modern theories, highlighting key figures such as Plato, Aristotle, and Smith. It examines overarching themes such as the relationship between value and prices, the concept of microeconomics, and the dynamics of distribution and factor prices. The text critiques the roles of markets and states, the impact of inflation, and the tensions between communal and private property. It further explores historical perspectives on stability, growth, and inequality, weaving in ancient wisdom and contemporary implications.

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Exploring Economic Thought: Value, Prices, and the Role of Market and State Through History

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  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 Society parallels the mind …the State is the soul writ large • The elite: Communal property/communal women • Philosophers • Soldiers • Shared Austerity Thinking Philosophers Soldiers (Response to scarcity) Fighting No incentive to advance Workers Craving Merchants

  5. Aristotle (384 – 322 bc): focus on individual Human inequality  distributive justice …according to individualmerit 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 17th century): • Anticipations of Keynes: Jobs, jobs, jobs • Colbert (French minister, late 17th century): REGULATE!!! • Hamilton (American minister, late 18th 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  INFLATION • 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

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