2.08 The problem of value and the birth of modern economics Flashcards
Adam Smith
known as being the father of neoclassical economics.
price theory of value
market forces of supply and demand will determine the logical price point for a particular good or service at any given time
How is money debt
money represents banks’ debts to the public.
what are externalities
a cost or benefit, not transmitted through
prices, incurred by a non-consenting party benefit = positive externality, cost = negative externality.
Labour theory of value
the economic value of a good or service is determined by the total amount of “socially necessary labor” required to produce it.
Adam smiths main works
theory of modern sentiments. An enquiry into the nature and cause of the wealth of nations
The theory of moral sentiments
- questions how we maintain order in a world without God
- There is a propensity of people to trade and barter
- Our morality with others is our sympathy
What are smiths main ideas in the wealth of nations
- The source of a nation’s wealth is not just the gold possessed (mercantilism) but the amount of wealth that can be generated through labour.
the division of labour (specialism) leads to more wealth
what is free market capitalism
the law of supply and demand, rather than a central government, regulates the economy
for smith, what does the a nations wealth comprise of
money is a method of storing and exchanging wealth, which is comprised of commodities and labor
Use value vs exchange value
The usefulness of a commodity vs. the exchange equivalent by which the commodity is compared to other objects on the market (water & diamonds)
problem of value
“we know the price of everything but the value of nothing”
what are smiths opinions on the division of labour? what are its unintended consequences
the division of labour leads to more wealth. BUT it leads to alienation
