Important Contributors Flashcards
Who is Adam Smith?
Known as the Father of Classical Economics who wrote The Wealth of Nations in 1776 and introduced the concept of the invisible hand. The invisible hand refers to individuals holding all the cards when it comes to the market: they were the buyers and the sellers. In this system, there was no need for government intervention to assist in the market cycle.
Additionally, the rise of the political economy saw an increase in civilized society, resulting from profit-seeking behavior rather than political processes or public authority (Caporaso and Levine 1992). Adam Smith (1776) noticed this change, calling it a transition from the “savage state of man” to a “civilized society” because of capitalism (Caporaso and Levine 1992).
Who is David Ricardo?
He is a Classical Economist who introduced the Theory of Comparative Advantage, which explains the pattern of trade and the gains from trade.
Comparative advantage is the ability of a country to produce a good at a lower (opportunity) cost than another country. Ricardo’s logic behind comparative advantage is that a country has a comparative advantage in an exported product because its absolute advantage is higher and a comparative disadvantage in an imported product because its absolute advantage is lower. Thus, specialization and trade should result in a country’s exports being concentrated in goods where the country has a comparative advantage.
Who is John Maynard Keynes?
He is the founder of Keynesian Economics and the writer of The General Theory of Employment, Interest, and Money in 1936.
John Maynard Keynes questioned the claims of market self-regulation, asserting that an unregulated market will fully utilize a society’s productive potential (Caporaso and Levine 1992). Keynes argued that failure for an individual to find a buyer can be a systematic problem but is not relevant to the association of what has been produced and what is needed. Therefore, failure of aggregate demand is different from failure of particular demand. The Keynesian approach focuses on the instability of the process of reproduction and growth in a capitalist economy (Caporaso and Levine 1992).
Keynes encouraged a reconsideration of the relationship of politics in markets as an opposed view of Adam Smith’s invisible hand. Instead, the Keynesian view set limits on wage contracts and included government involvement in regulating the production and distribution of wealth. Economists of the Keynesian approach accept that capitalist economies will not make full use of the resources available to them (Caporaso and Levine 1992). This leads to circular instability (Kalecki 1969), undermining the classical conclusion that markets regulate themselves (Caporaso and Levine 1992).
The Keynesian approach to the political economy includes the expectations of demand as a driver of investment decisions with regards to wage contracts and savings. The labor market is at the center of the Keynesian discussion of instability. It is where most individuals acquire their livelihood and the wage contracts link demand of products to wages and employment. Thus, employment depends on and determines demand (Caporaso and Levine 1992). However, Keynesian economists argue that workers don’t have the capacity to influence employment in regard to its price due to a lack of control over the cost (Keynes 1936; Kalecki 1969). Instead, the wage bargain for demand controls the money wage rate, not the connection between money wages and prices. This leads to perverse effects between workers and employers involved in the contract (Caporaso and Levine 1992).
Who is Karl Marx?
He is the founder of Marxism and is attributed to strong views on communism and capitalism in his book The Communist Manifesto in 1848.
Marx’s publication of the first volume of “Capital” (Das Kapital) his masterwork of economic theory expressed a desire to reveal “the economic law of motion of modern society” and laid out his theory of capitalism as a dynamic system that contained the seeds of its own self-destruction and subsequent triumph of communism.
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Who is Karl Polanyi?
He wrote the Great Transformation in 1844 during the rise of the Market Economy. Polanyi contends that the modern market economy and the modern nation-state should be understood not as discrete elements but as the single human invention he calls the “Market Society”.
Polanyi examined how the emergence of the self-regulating market principle was responsible for the commodification of nature and life by creating fictitious commodities. Also, Polanyi argued that the British state played a fundamental role in this process, inasmuch as it acted in favor of market forces (Guizzo and de Lima 2017).
Who is Douglas North?
Is the author of the 1991 Institutions article. His work was the single most important source of inspiration that led development agencies in the early 1990s to shift their attention from technical economic issues towards broader institutional concerns. This shift, reflected in the World Bank’s motto ‘institutions matter’, brought about a substantial increase in the resources that international development agencies allocate to legal and institutional reform (Faundez 2016).
Who is Milton Friedman?
Milton Friedman was an American economist who believed in a free market and less government involvement. In contrast to the Keynesian theory, Friedman subscribed to monetarism, which highlighted the importance of monetary policy and that shifts in the money supply have immediate and lasting effects. He is thought to be the twentieth century’s prominent advocate of free markets.
Friedman established himself in 1945 with Income from Independent Professional Practice, coauthored with Simon Kuznets. In it he argued that state licensing procedures limited entry into the medical profession, thereby allowing doctors to charge higher fees than they would be able to do if competition were more open.
His landmark 1957 work, A Theory of the Consumption Function, took on the Keynesian view that individuals and households adjust their expenditures on consumption to reflect their current income. Friedman showed that, instead, people’s annual consumption is a function of their “permanent income,” a term he introduced as a measure of the average income people expect over a few years.
In Capitalism and Freedom, Friedman wrote arguably the most important economics book of the 1960s, making a case for relatively free markets to a general audience. He argued for, among other things, a volunteer army, freely floating exchange rates, abolition of licensing of doctors, a negative income tax, and education vouchers.
Although much of his trailblazing work was done on price theory—the theory that explains how prices are determined in individual markets—Friedman is popularly recognized for monetarism. Defying Keynes and most of the academic establishment of the time, Friedman presented evidence to resurrect the quantity theory of money—the idea that the price level depends on the money supply. In Studies in the Quantity Theory of Money, published in 1956, Friedman stated that in the long run, increased monetary growth increases prices but has little or no effect on output. In the short run, he argued, increases in money supply growth cause employment and output to increase, and decreases in money supply growth have the opposite effect.
Friedman’s solution to the problems of inflation and short-run fluctuations in employment and real GNP was a so-called money-supply rule. If the Federal Reserve Board were required to increase the money supply at the same rate as real GNP increased, he argued, inflation would disappear (The Library of Economics and Liberty 2019).
Who is Robert Solow?
He is a Keynesian and 1987 Nobel Prize winner “for his contributions to the theory of economic growth.” His first major paper on growth was “A Contribution to the Theory of Growth.” In it he presented a mathematical model of growth that was a version of the Harrod-Domar growth model. The main difference between his model and the Harrod-Domar model lay in Solow’s assumption that wages could adjust to keep labor fully employed.
Solow soon followed that paper with another pioneering article, “Technical Change and the Aggregate Production Function.” Before it was published, economists had believed that capital and labor were the main causes of economic growth. But Solow showed that half of economic growth cannot be accounted for by increases in capital and labor. This unaccounted-for portion of economic growth—now called the “Solow residual”—he attributed to technological innovation. His article originated “sources-of-growth accounting,” which economists use to estimate the separate effects on economic growth of labor, capital, and technological change.
Who is Carl Friedrich Gauss?
He is credited with creating the normal distribution based on astronomical observations. He is also generally regarded as one of the greatest mathematicians of all time for his contributions to number theory, geometry, probability theory, geodesy, planetary astronomy, the theory of functions, and potential theory (including electromagnetism).
Who is John Stuart Mill?
One of the most influential thinkers in the history of classical liberalism, he contributed widely to social theory, political theory, and political economy.
Mill’s A System of Logic (1843) discusses the positive “method of agreement” and the negative “method of difference” comparative methods (Smelser 1976). This method is very extreme and it is hard to find two cases that are identically in all ways but one.
Mill’s (1976) Considerations on Representative Government where he identified three fundamental conditions: (1) “that the people should be willing to receive it [representative government]; (2) that they should be willing and able to do what is necessary for its preservation; and (3) that they should be willing and able to fulfill the duties and discharge the functions which it imposes on them.”
Who is Robert Barro?
Barro, Robert J. 1997. Determinants of Economic Growth: A Cross-Country Empirical Study. Cambridge, MA: Massachusetts Institute of Technology.
Growth differences between countries depend on each country’s existing level of output. If a country’s output is below the steady state level of output, then there is a catching-up process; occurring mainly through technology transfer. Each year of growth eliminates about 2.5 % of the gap between actual and steady-state output. Initial models indicate that the absence of diminishing returns means that the accumulation of capital could sustain growth indefinitely, even if the rates of growth are not Pareto optimal. Additional analysis argues that technological progress was the only way to avoid diminishing returns in the long run. However, newer models provided that the standard applied framework derives more from the older, neoclassical model, extended to incorporate government policies like institutional choices that maintain property rights and free markets, accumulation of human capital, fertility decisions, and the diffusion of technology. Poorer countries grow faster per capita once one holds constant measures of government policy, initial levels of human capital, etc. Endogenous growth theory stimulates empirical work that demonstrates the explanatory power of the neoclassical growth model.
Who is Simon Kuznets?
Kuznets is credited with defining national income and creating the Kuznets inverted-U curve, or bell curve in terms of income and inequality. His famous works are from 1941 and 1955.
Who is Bela Balassa?
Balassa is best known for his work on the relationship between purchasing power parity and cross-country productivity differences.
The Balassa (1965) index of Revealed Comparative advantage is the ratio of a country’s share in world exports of a given industry divided by its share of overall world trade.
Who is Paul Samuelson?
Samuelson published his greatest contribution to operations research, Linear Programming and Economic Analysis (1958). This book was one of the first to wed econometrics with linear programming, bringing theoretical application to professional industry.
In the 1960s Samuelson served as an economic advisor to the presidential administrations of John F. Kennedy and Lyndon Baines Johnson. In this capacity he worked as a consultant to the United States Treasury, the Bureau of Budget, and the Council of Economic Advisors.
Samuelson was considered one of the founders of neo-Keynesian economics and wrote a column in Newsweek opposite Milton Friedman, who represented the Monetarist perspective.
Who is J.B. Say?
Say is credited with creating Say’s Law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand.[1] In his principal work, A Treatise on Political Economy (Traité d’économie politique, 1803), Jean-Baptiste Say wrote: “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”[2] And also, “As each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase.”
