Chapter 1. Some Methodological Considerations
some basic methodological background essential to ~
Our aim, however, is to be as concise and relevant as possible, and hence the reader will become familiar only with some elementary issues that are important, if not to real life, then at lease to the following text.
$1 Economic Theories
deduction: All heavy bodies fall to the ground.
-> This particular heavy body will fall to the ground
induction: many isolated observations lead to a proposition that is likely to be universally valid. But the trouble with this is that such propositions, even under ideal conditions, can be confirmed in nothing but a finite number of cases.
This is the famous induction problem: Because we are unable to confirm empirical propoisions in all cases where they could apply, the former cannot be proved universally valid.
Starting from the induction problem, the development of science has been imagined in the following way:
Theories are employed until they happen to become falsified by at least one example demonstrating a contradiction; they are then substituted by new theories which do fit the facts and in this sense are more general than the "old" ones. - critical rationalism (KARL R. POPPER) - considers empirical falsification as the main "engine of progress" in science.
There is never a "theory-vaccum"
`
$2 Economic Models
Abstraction and simplicifation are the inherant funtions of a model.
A "good" model yields economic insight, and it is less important how well the premises fit reality.
(astronomers treat both moon and earth as balls in the mathematical sense.)
`
$4 Equilibrium and Disequilibrium. Stable / indifferent
Equilibrium is conceived as a state of rest.
- if the endogeneous variables do not change over time.
Equilibrium - in the theoretical sens
Equilibrium - in the normative sense
Equilibrium - stable
Equilibrium - indifferent
Equilibrium - unstable
If we were unable to find a stable equilibrium as the economy's "center of gravity", we could state literally nothing about economic laws or future evolutions.
`
$5 Statics, Comparative Statics, and Dynamics
statics - the original curves
comparative statics - "shifting of curves" - the change of price and quantity can be analysed.
dynamics -
`
$6 Ex Post versus Ex Ante Analysis
two methos are employed which must be carefully distinguished.
ex post(afterwards-observed): "supply equals demand" - purchases and sales were the same
Ex ante(planned) - planned purchases and sales.
`
$7 Partial versus Total Analysis. The Ceteris Paribus Clause
ceteris paribus: "other things being equal"(partial factor) <- "all relevant factors"??
Total analysis: cover all markets
`
$8 Microeconomics versus Macroeconomics
Macroeconomics differs from this approach in that it starts from the aggregate of several (or all) households or entrepreneurs. -> a loss of information due to the aggregation.
By now, it should have become clear to the reader that the terms microeconomics and macroeconomics do not refer to certain theories but to methods.
`
Chapter 2. Historical Survey
According to SCHUMPETER, the thre benefits from studying the history of economics thought are pedagogical advantages, new ideas, and insights into the ways of the human mind - but, in a book on macroeconomics, matters stand quite differntly.
`
$9 The Predecessors
practical men publications: mercantilism: The mercantilists focused on promoting national exports and trading power as well as on fiscal targets, i.e. providing receipts for the sovereign's treasury(camera). From this the name cameralism was deriveed for German mercantilism which is a forerunner of medern public finance.
Sir William PETTY (1623~1687) is one of the forerunners in the development of economic analysis which, according to SCHUMPETER, must be distinguished from the development of economic reasoning.
PETTY established the concept of national surplus that was to become a characteristic feature of Classical economics.
Imagine an economy that only produces "corn" by means of labor and "corn", i.e. capital. In order to produce 100 units of corn, 10 hours of labor and 20 units of "corn" are assumed to be necessary. The latter are a flow; they represent the use of "corn" in production or, to use contemporary jargon, capital amortization. The workers receive a subsistence wage, which just enables them to maintain their and their families' capacity to work,. This subsistence wage, which possibly satisfies cultural needs as well, may amount to 6 units of "corn" per manhour.
Hence, for producing 100 units of "corn" 10*6+20 = 80 units of "corn" are required: after deducing the cost of production there remains a surplus of 20 units.
PHYSIOCRATS
RICHARD CANTILLON(1680?-1734) who was the first to consider the problem of resource allocation and also showed for the first to consider the problem of resource allocation and also showed for the first time how demand controls the pattern of production via changes in relative prices.
`
$10 The Classical Economists
The Classical period of economics can be said to begin in 1770.
"An Inquiry into the Nature and Causes of the Wealth of Nations"
ADAM SMITH(1723-1790) was Professor of Moral Sciences at the University of Glasgow. The significance of his work is partly due to his own anlytic contribution but mainly to his arrangement of existing thought, which he forcefully unified. Through the work of SMITH, economics was established as an autonomous field of knowledge for the first time.
SMITH's <"invisible hand"> which symbolizes the working of a market economy (and the Classics were convinced that a market economy would work). This "invisible hand", i.e. the pricing mechanism, coordinates the plans of individuals in spite of - or due to - their selfish behaviour. Underlying this is the notion of natural order to which the given order should come as close as possible so as to achieve the "optimum optimorum". Consistently, the Classics required that the state refrains from intervening in the economics process; later on, this notion was ridiculed as the "nightwatchman state" by F. LASALLE.
The idea, or ideology, of "laissez faire" was not only an attack on the mercantilists, who considered import restriction and other regulations suitable tools of economic policy, but rather a rejection of interventionism and activism in general. Only two functions were assigned to the government, namely, to take responsibility for security and to establish a legal system that maintains freedom of trade and private property.
What was the main concern of the Classical economists? It was not the allocation problem or the theory of the pricing mechanism though these two were very important also. Rather, the Classics focused on problems that were all connected with the above mentioned surplus of the economy; and their main quistions refered to the formation of that surplus, its distribution among the different classes of society, and its utilization as "luxury consumption" or "investment". This latter problem - we would now call it a problem of economic growth - was exceptionally important to Classical theory. The Classics uniquivocally favored the second alternative(investment) because, in the long run, it increases the capital stock and thus the "wealth of nation".
THOMAS MALTHUS(1766~1834)
JEAN BAPTISTE SAY(1767~1832)
DAVID RICARDO(1772~1832) who first developed the labor theory of value and was especially interested in problems of distribution
JOHN STUART MILL(1806~1873), the great philosopher, who elaborated the Classical doctrine in its perfection.
Lord KEYNES embraced all economists before his time under Classics, thus he combined the Classical and Neoclassical economists.
but there are important differences between Classical and Neoclassical economics;
`
$11 The Neoclassical Economists
Usually, Classical and economics are delimited by the so-called "marginal revolution"
marginal - of the last "small" unit
Marginalism as the central innovation of Neoclassical economics is the generic term for all those "marginal" considerations that are embodied in expressions such as "marginal utility" or "marginal cost". This method differs from that of the Classical economists who rather tended to argue macroeconomically. The Classics were more concerned with the behaviour of certain "classes" of society whereas the Neoclassics focused on the individual. From this point, the economic process was chiefly analysed proceeding from individual behaviour.
Neoclassical marginalism was firstly used in value theory, anbd here it gave rise to an incisive change; The Classics unequivocally conceived of the value of a certain good as determined by its cost of production. This is the production theory of value which was developed into the labor theory of value by RICARDO and MARX. In contrast, the early Neoclassics thought that it was the marginal utility of a good which would control the price offered by the customers and hence its value. This is a subjective theory of value in contrast to the objective one of the Classics; but we point out that it was only employed by the early Neoclassics.
To conclude, the most important difference between Classical and Neoclassical economics can be put as follows: The Classics examined the economic events that would take place over time, whereas the Neoclassics selected a single instant and then analysed the economy in an essential static manner. Hence the interest had shifted from the theory of growth to the theory of value.
WILLIAM STANLEY JEVONS (1835~1882)
CARL MENGER (1840~1921)
LEON WALRAS (1834~1910) : combining the subjective and the objective approach
ALFRED MARSHALL (1842~1924) who held the Chair of Political Economy at Cambridge/Britain
Today, MARSHALL's brilliant synthesis of the objective and subjective components of value(cost and utility, respectively) is illustrated by the well-known schedules of supply and demand which he also developed.
HERE, THE SUPPLY CURVE REPRESENTS THE OBJECTIVE,
THE DEMAND CURVE THE SUBJECTIVE COMPONENT OF VALUE;
and their point of intersection determines both market price (in the short run) and natural price (in the long run).
Other distinguished representatives of Neoclassicism are
IRVING FISHER (1867~1947),
VILFREDO PARETO (1848~1923),
KNUT WICKSELL (1851~1926),
ARTHUR CECIL PIGOU (1877~1959) - MARSHALL's successor
to name merely a few that are important to the following.
`
$12 From KEYNES to the Present
JOHN MAYNARD KEYNES (1883~1946) - "General Theory of Employment, Interest and oney"
Due to KEYNES, the macroeconomic theory of today came into being, whereas microeconomics was somewhat restrained.
resource allocation -> employment.
Henceforth, the main questing was not "How are scarce - and therefore fully employed - resources allocated to differenct uses?" but "Why are scarce resources, especially labor, sometimes not fully employed?"
`
No comments:
Post a Comment