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Economists-Moral Philosopers: Adam Smith-The Wealth of Nations Karl Marx-Das Kapital

This document summarizes key economists and their works: - Adam Smith wrote The Wealth of Nations and focused on the division of labor, labor as the basis of wealth, and markets as self-regulating systems. He believed the "invisible hand" guided self-interest toward the social good. - Karl Marx wrote Das Kapital and the Communist Manifesto. He viewed society as divided between owners and workers, with owners exploiting workers. History is the history of class struggle according to Marx. - John Maynard Keynes wrote The General Theory, arguing fiscal and monetary policy could reduce unemployment left unchecked by free markets. Effective demand, not just supply, determines output.

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Dede Mahendra
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92 views26 pages

Economists-Moral Philosopers: Adam Smith-The Wealth of Nations Karl Marx-Das Kapital

This document summarizes key economists and their works: - Adam Smith wrote The Wealth of Nations and focused on the division of labor, labor as the basis of wealth, and markets as self-regulating systems. He believed the "invisible hand" guided self-interest toward the social good. - Karl Marx wrote Das Kapital and the Communist Manifesto. He viewed society as divided between owners and workers, with owners exploiting workers. History is the history of class struggle according to Marx. - John Maynard Keynes wrote The General Theory, arguing fiscal and monetary policy could reduce unemployment left unchecked by free markets. Effective demand, not just supply, determines output.

Uploaded by

Dede Mahendra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Economists-Moral Philosopers

Adam Smith-The
Wealth of Nations
Karl Marx-Das
Kapital

The Classics
Adam Smith : The Wealth of Nations/
Theory of Moral Sentiments

Karl Marx: Capital, Communist Manifesto

Adam Smith
Division of Labor is Key
Labor is the basis of wealth;
The division of labor implies economic
interdependence.
Markets are self-regulating systems for
the orderly coordination of the division
of labor.

Adam Smith
Invisible Hand

Adam Smith
Invisible Hand Assumptions:
Our preferences are consistent
We act based on self-interest
Individual Good adds up to
Social Good
Government Ensures Property
Rights.

Adam Smith
Invisible Hand Assumptions:
Enough buyers and sellers as for there not to be
a monopoly

Invisible Hand Assumptions:


Perfect Information that backs up our economic
decisions

Invisible Hand Assumptions:


No Externalities

But first
Sohow is it that, as you are saying Mr.
Smith, if value is originating in labor
(therefore we need more workers and
division of labor-population growth and
economic growth), all of the profit is kept
by factory owners?

Conflict theory
All societies are divided into two groups
Owners
Workers

Our society is capitalist.


Owners are bourgeoisie
Workers are proletarians

Marx on history

The history of all hitherto


existing society is the
history of class struggle.

Owners and workers


Owners exploit workers and live off the
money which the workers earn
Members of classes bind together in the
pursuit of their common interests.
Workers put up with this inequality because:
They are oppressed wage slaves and cannot fight
the system
They are indoctrinated by ideology and religion
into believing what they are told by the powerful.

More from Marx


Technical progress, the growth of
knowledge, and conflict among classes all
foster perpetual change.
Capitalism as an economic system is
irrational in the sense that it stands in the
way of making good the ability of modern
science and technology to meet human
needs.

Conclusion
Marxism is an understanding of the nature
of social relationships which you are
expected to evaluate. Recognise that it has
strengths and weakness as a tool of
understanding of our culture.

John Maynard Keynes (1883-1946)

Born in 1883 in Cambridge, England


Son of John Neville Keynes
Neville was a professor of Economics and Logic at Cambridge Univ., and
wrote on Economic Methodology

Won a scholarship to Eton


Boy Genius
Part of Etons social elite
Won a scholarship to Kings College, Cambridge
1911, he became editor of the Economic Journal.
Worked at the Treasury during WWI.
1921, he published A Treatise on Probability. This was his dissertation.
It won him a fellowship at

Keynes, Inter-war Years

Keynes wrote the Economic Consequences of the Peace (1919),


regarding reparation payments
Best Seller
Made him a public celebrity

1923, Tract on Monetary Reform (against returning to the pre-war gold


standard)
Economic Consequences of Mr Churchill (1925, warned of depression)
1930, Treatise On Money
Makes millions in the stock market, commodity, and forex markets.
1936, General Theory of Employment, Interest and Money
1937, he has a serious heart attack

The General Theory


I believe myself to be writing a book on
economic theory which will largely
revolutionizenot, I suppose, at once
but in the course of the next ten years
the way the world thinks about economic
problems.
-- John Maynard Keynes

Comment by Paul Samuelson


It is a badly written book, poorly organized; any layman who,
beguiled by the authors previous reputation, bought the book
was cheated of his 5 shillings. It is not well suited for classroom
use. It is arrogant, bad-tempered, polemical, and not overlygenerous in its acknowledgements... In it the Keynesian system
stands out indistinctly, as if the author were hardly aware of its
existence or cognizant of its properties; and certainly he is at his
worst when expounding on its relations to its predecessors.
Flashes of insight and intuition intersperse tedious algebra. An
awkward definition gives way to an unforgettable cadenza. When
it is finally mastered, we find its analysis to be obvious and at the
same time new. In short, it is the work of genius.

The General Theory


a)
b)
c)
d)

According to the classical model, the consumer has insatiable


wants.
The consumer sells his/her labor in exchange for enough income
to buy the goods.
The money value of the incomes received must be equal to the
value of the output produced.
So how can unsold goods pile up in warehouses, causing firms
to lay off workers?

The General Theory (2)


2. Says Law cannot hold. (Supply creates
its own demand.)
a) If spending constraints are in effect, then
there will be a difference between (unlimited)
demand and effective demand.
b) Actual (effective) demand will usually be
deficient to purchase total output.

The General Theory (3)


The market system is not self-regulating: left to its own
devices the market system fails to make sensible use of our
productive potential.
Unemployment is a chronic problem in a capitalist
economy. Government intervention in the economy can
reduce unemployment and instability.
Ergo Fiscal and Monetary Policy!

Entrepreneurship and the Origins


of Competitive Advantage
Simple neoclassical microeconomic theory allows for little or no role
for entrepreneurs
A firm is a production function; it transforms inputs into outputs
The way the firm transforms inputs into outputs is assumed to be
technically and economically efficient
Where do techniques come from? How are they improved, and why?
Schumpeter emphasizes the role and importance of entrepreneurs

Entrepreneurship
In reality, some firms exploit opportunities for creating profitable
competitive positions that other firms either ignore or cannot exploit
Seizing such opportunities is the essence of entrepreneurship
Entrepreneurship involves discovery, innovation, and acting on the
opportunities that discovery and innovation create (page 132):
To undertake such things is difficult and constitutes a distinct economic
function, first, because they lie outside the routine tasks which everybody
understands and secondly because the environment resists in many ways
that vary, according to social conditions, from simple refusal either to
finance or to buy a new thing, to physical attack on the man who tries to
product it.

Creative Destruction
Schumpeter believed that innovation causes most markets to evolve in a
characteristic pattern
There are periods of relative stability, when firms that possess superior
products, technologies, or organizational capabilities earn positive economic
profits
These periods are punctuated by fundamental shocks or discontinuities that
destroy old sources of competitive advantage (profits above the norm) and
replace them with new ones
The entrepreneurs who exploit the opportunities these shocks create achieve
positive economic profits during the next period of stability

The Long-Run Performance of


the Economy
According to Schumpeter, the process of creative destruction implies that
static efficiency the optimal allocation of societys resources at a given
point in time is less important than dynamic efficiency the achievement
of long-term growth and technological improvement
What really counts is competition between new products, technologies,
and organizational techniques, not price competition (pages 84-5):
This kind of competition is as much more effective than the other as a
bombardment is in comparison with forcing a door, and so much more
important that it becomes a matter of comparative indifference whether
[price] competition in the ordinary sense functions more or less properly;
the powerful lever that in the long run expands output and brings down
prices is in any case made of other stuff

Policy and Managerial


Implications
Schumpeters ideas have been used to defend
monopoly, on the grounds that high economic
profits are a necessary reward to encourage
innovation, which results in higher long-run
growth
Policy analysis should focus more on the
impacts of policies on innovation and less on
the impacts on prices and current welfare

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