Week 1 Lecture 1 - Introduction Flashcards
What are the four main economic schools of thought?
- Keynesianism
- Monetarism
- Marxist economics
- The Austrian School
Who was the main economist associated with the Austrian School of thought?
Friedrich Hayek
What is the fundamental belief of the Austrian School?
The fundamental belief of the Austrian School is in the power of free markets, private property, property rights and individual choice
What is meant by the market economy?
- The market economy is nothing but voluntary cooperation of free individuals
- Prices in a market economy reflect free individual’s preferences
- In particular, the market economy is a completely natural institution and an inevitable consequence of freedom
Define the term market intervention
Market intervention is the interference with individual freedom (coercion)
How did the Austrian School feel about any centralized authority in an economy?
The Austrian School was skeptical towards any centralized authority
What was the similarity in the beliefs of Austrians and libertarians?
Like libertarians, Austrians have an extremely strong belief in individual freedom and the benefits of economic freedom (ie. The market economy)
What did Hayek say about a market economy?
Hayek said that the market economy may not be perfect but any attempt at fixing things will inevitably make things much worse
What are the beliefs of the Marxist economic school of thought?
- Society is dominated by class struggle and the exploitation of one class by another
What does Marxism say about the model of a market economy?
- Marxism states that there is nothing natural about the market economy and that it reflects existing power structures:
- Workers produce things for the market, but market forces control workers and make them subject to a specific group’s interests
What is the main contrast between Marxism and The Austrian School?
- The Austrian school believes that a market economy grows naturally out of freedom whereas Marxism argues against this
- Marxism spoke about business cycles and the market economy (capitalism) as fundamentally crisis-prone and imperfect
- Marxism predicted the eventual collapse and replacement of capitalism with communism
Explain Keynes’ thoughts around free markets
Keynes challenged the concept that free markets if left to their own devices ensure for example full employment
How is Keynesianism different to the Austrian school and Marxism?
Keynesianism states that the market economy is like a machine that may not work well and therefore needs fixing, but it remains natural
How did the Austrians respond to the idea of Keynesianism?
Keynesianism implies intervention in the market hence there is a loss of freedom and ultimately coercion according to the Austrians
What did Marxism say about Keynesianism?
Marxists would say that fixing the market mechanism would simply sustain the existing class structure
What was the fundamental belief of monetarism?
- The fundamental belief of monetarism is monetary neutrality
- Monetary neutrality is the idea that an increase in the money supply will over a period lead to an increase in the price level but not in real variables such as output, consumption and relative prices
What is the role of monetary policy?
The role of monetary policy is to control money supply and hence inflation
How do monetarists view fiscal policy?
Monetarists frequently view fiscal policy as very error prone due to timing issues and other problems with implementation (eg. Corruption)
State the differing beliefs of soft monetarist and hard monetarists about fiscal policy
- Soft monetarists: They are somewhat supportive of active fiscal policy
- Hard monetarists: They believe that fiscal policy does more harm than good and that monetary policy should follow rules or it too will do more harm than good
