Alternate economic thinking Flashcards
Adam Smith’s invisible hand
The pursuit of self interest often promotes the best interests of society
Adam Smith on division of labour
Saw division of labour as the main grower of output per worker and capital growth
(Adam Smith) Division of labour creates growth by… (3)
Specialisation
Saves time from switching of roles
Promotes development and use of capital
New trade and R+D can occur
Smith on wages,rent and profit
Saw poor distribution of income as a result of weak labour bargaining power which meant wage rates stayed at subsistence levels unless demand for labour outpaced supply
Why was labour bargaining power weak
Large numbers = poor coordination
Law did not permit strikes
They couldn’t hold out in long disputes
Smith on wage and profit differentials
Explained differentials with productivity as well as other factors such as skill, risk and age
Smith on role of state
The state should provide public goods paid by a tax system that takes based on individuals ability to pay
After the creation of paper money this role grows to preventing excessive credit creation
David Ricardo’s theory of value of distribution (3)
The higher the labour productivity the lower the commodity therefore national wealth is higher
Inverse relationship between share of income paid on wages and share paid on profit
Rent only exists because some land is more productive than others
Ricardo’s theory on international trade
Proved comparative advantage made trade advantageous
John Stuart Mill
Because the marginal utility of income diminishes, income tax and inheritance tax should be used to balance inequality as that money is better utilised by a lower income individual
Marx/socialists law of tendency for the rate of profit to fall
Saw greater per worker creating excess labour (unemployment) creating downward pressure on wages
Therefore AD and growth will fall
3 sectors of Marx simple and extended reproduction
Producing means of production
Producing wage goods
Producing luxury goods
2 purposes of the Marx S+E reproduction model
Study co-ordination and accumulation of economic expansion
Understand why reproduction can fail and crisis can occur
4 causes of crisis from S+E reproduction model
Sectoral disproportions
Increased inequality reducing demand
Fall in general rate of profit leading to reduced capital accumulation
In a monetary economy liquidity may be withdrawn due to low expectations of profit growth
