IDEV Final Flashcards
(113 cards)
Neoclassical Theory
- Modled on the revolution of physics
- Under conditions of perfect competition, price making markets yield a long term set of prices that balance the supply and demand for all commodities in consumption and production
- Conditions: preferences of consumers, productive techniques, the mobility of productive factors, market forces of supply and demand allocating resources efficiently in a way that minimizes cost
- All participants recieve income that compensates their work
- Value is rooted in utility, not labour
- Each additional unit of consumption reduces its utility
Neoclassical Theory- General Equilibrium
- Each product has a supply function that reflects quantity of supply, depending on the costs of production, price and technology
- Equilibrium is reached when a single price satisdies both consumers and produces, resulting in an outcome in which one variable can’t improve without the other worsening
Neoclassical Theory- Implications for Development Theory
- It’s used in public managment, cost-benefit analysis, international development, and social and environmental policy
- Developing countries can increase development by encouraging the free market
Tort Law, Mill’s harm principle
- A person can do whatever they want as long as their actions don’t cause harm to others
- The only reason power can be rightfully exercised over anyone against their will is to prevent them from doing harm to others
- Therefore, because economic life is involved in social interest, Mills Law could be applied to avoid economic violence
Critiques of Neoclassical Theory
- Assumes that people behave rationally in regards to the theory
- Assumes everyone does what the theory needs them to do
- The theory simplifies human behavior
- Recessions and negative growth can cause the general equilibrium part of the theory to be seen as questionable
- Failed in the great depression
Differences Between Classical Economic Theory and Neoclassical Theory
- Neoclassic economists think prices should be based on how much value consumers put onto a product and that consumers make decisions to maximize the utility of a product
- Classical economists think that the value of a product comes from the cost of manufacturing
- Classical economists look at how economic systems expand and contract they look broadly at the economic systems
- Neoclassic economists look at individual or company behaviour
- Classical is a Historical approach, Neoclassical is a mathematic approach
The Counter-Revolution Theory Three Eras
- Keynesian Era
- Neo-Liberal Era
- Contemporary Era
Keynesian Era
- Disturbed the neoclassical economic theories happiness
- Believed that the economic system didn’t automaticaly right itself in reaching the “optimal level of production”
- This was proven by the great depression, when markets were incapable of optimization and also keeping workers employed
- Rejected the theory of comparative advantage and the neoclassical idea that unemployment was a function of supply and demand
- Argued that the creation of demand by supply could happen at any level of employment, and full employment wasn’t the only possibility for capitalism
- The level of employment in an economy is determined by demand
- The groups determining demand are either consumers buying consumption goods or investors buying consumption equipment
- In the Keynesian system, real investment (spending on factories, tools, machines, and larger inventories of goods) was the most important variable because changes in this influenced all other areas of the economy
The Bretton Woods System (Related to Keynesian)
- Keynes led the British delegation during the Bretton Woods negotiations in 1994 that led to the establishment of the World Bank and the International Monetaty Fund
- Keynes supported the idea of adopting a world currency at the time that would be responsible to a newly-established International Clearning Union which provided incentives for avoiding large trade deficits and surpluses
- The US stopped this though by imposing a compromise that ensured that the US treasury could control the World Bank and the IMF
Keynesian Economic Policy and the Role of the State (Monetary, Fiscal, Demand-side stimulus, Social Democracy)
Monetary Policy:
- Governments using interest rates to manage the money supply and manipulate real investment and demand
Fiscal Policy
- Governments using deficit spending to stimulate demand and factor productivity
Demand-side stimulus
- Multiplier effects in which lower interest rates encourage more spending on consumption and producer goods
- Accelerator effects where buisness confidence leads to increasing investment
Social Democracy
- Governments running deficists to create and maintain social saftey nets. Ex. the NHS, and International Monetary Fund
Structuralism- Post War Consensus
- Early recognition that post-colonial economies faced a number of structural challenges that made it difficult- if not impossible to approximate the theory and practicce of neoclassical economics
- In regards to trade, primary export experienced declining terms of trade in relation to manufactured imports
- In regards to inflation, standard approaches such as restricting the money supply by raising interest rates had little to no impact on inflation
Early Calls For Structural Change- Structuralism
- Structural economists argued that developing economies were structurally different from the assumptions and lived experiences of neoclassical economics. Ex. Rural underemployment, enduring class structures, low levels of industrialization and dependence on primary goods
- The solution was to remove those obstacles by engaging in redistributive land reform and import substitution industrialization
The Unfilfilled Promise of Land Reform (Redistributive, Revolutionary, Modest)
Redistributive
- Taking the land from rural elites
- Redistributing to the tiller
- Captialism and private property remain intact
Revolutionary land reform
- Taking land from rural elites
- All land is owned by government
- Private property is prohibited
Modest land reform
- Taking land from rural elites
- Land rights are vested in communes and collectives
- Capitalism and private property remain intact
Example of Redistributive Land Reform: South Korea
- Had exeptional conditions such as a US influence after WW2 and a weakened rural elite
- Land reform was put in place (land ceilings, compensation, and extention)
- Before 1949, 4% owned 50% of the land
- After 1954, 90% owned their own land
- 1952-71 agricultural output grows 3.5% per year
Modest Land Reform in Mexico
- Before 1917, 1% owned 97% of the land, 96% were landless
- From 1934-40, land ceilings of 100 hectares were created, 50 million acres was redistributed, landlessness was cut in half
- Twas fine until the 70s and 80s, when urbanization and growing population pressure partly ended food self-sufficiency
- After neoliberal reforms in the 90s to now: privatization of state-owned fertilizer companies and a 1992 law that created private property again results in a continuing dependency on food imports
Dependency Theory
- Occured in the 1970s
- Declining terms of trade: Price of exports fell in relation to manufactured imports
- Repatriation of capital: Profits went back to European, North American, and Northeast Asian capitals, “core” and “periphery” (expand)
- Class Structures: Internally divided societies especially along lines of land
Classical Political Economy
- Rooted in the radical idea of freedom and individual liberty
- Reconciling individual selfishness with the public good
- Classical Economists took the idea of work producing value and the labour theory of valu and turned it into the abstract realm of economic theory
Classical Political Economy- John Locke, Value and Property Rooted in Individual Labour
Freedom and Individual Liberty
- Began by accepting the medieval Christian view that God originally gave the Earth and its products to all people equally
- Said individuals had the right to preserve their own lives and therefore had a right to food and drink that came from the earth
- Natural rights: People have a right to provide food for themselves through the earth
- Extended property rights to include commodities that were produced from natural materials
- Labour is the individuals property, with employers entitled to appropriate the product of the workers
- This argument on private property earned through work was important in the founding of “free land” in the US
- The value of a property comes from the work people put into it and products they take out of it (labour invested)
Classical Political Economy- David Hume, Benefits of Greed
- He saw human beings as compelled by greed for goods and possessions in a way that was directly distructive to society
- The greater interest of the self interested person is the preservation of society
- Self interestendness and social responsibility could be fixed through the middle class
- Middle class workers would want to produce good wares and be productive in order to satisfy their selfishness
Classical Political Economy- Adam Smith
- All humans share certain characteristics, either innate or resulting from the way people were raised
- He argued that humans all had an inherent urge to trade and are inherently self interested, so you shouldn’t expect people to be naturally good or kind, and should instead use the others “self love” to help the others self interest
- Self Regulating markets are an invisible hand, which organize the economy efficiently while also transforming private self interest into public virtue
- Essentiallly using our inherent urge to trade and stuff to organize competition in the market
Radicalism of Classical Liberalism
- Private property as the natual embodiment of the individual liberty, as opposed to colonialism, primitive accumulation, and the divine right of kings
- The benefits of trade
- Comparative advantage: specialization of national economies
Origins of Political Economy
- First developed within the philisophical tradition of Western scientific rationalism
- Developed as a symbolic representation of real events in early capitalism
- None of this was scientifically neutral, so modern economics was constructed negatively against the rulers of the previous precapitalist state
- Economics was a theoretical part of their revolutionary effort to distance themselves from precapitalism
- As the new class came to dominance and became weathly, economics became standard, but probably should’ve continued to change to help the poor rather than the rich
Modern Economics vs. Old medieval order
God and economy
- Modern economics contradicted the old medieval beliefs, specifically that communal economic justice reflected Gods will
- Augustinian Christianity defined work as punishment because of Adam disobeying God by lusting for Eve
- Work became the payment humans had to make for Adams sin, and God would be pleased if you worked hard
- Working hard and pursuing your talents went from being seen as selfish and sinful to being a service to the community because of the Protestants
- Them and their craftspeople realized that work produced value and more time = more value
- That’s the labour theory of value
Classical economics vs. Mercantilism
- Classical economics developed in conflict with this theory
- A system of ideas, institutions, politics, and economic practices that supported the all powerful state, monarchy, and aristrocratic classes of the early capitalist theories.
- Lasted from the 15th century to the mid-19th century
- Mercantilist political policy aimed at increasing national power
- A Mercantalist country was considered successful when it had a good balance of trade, so trade was controlled by the state and manufacturing was protected, regulated, and encouraged
- Classical economics maintained the rationalism of Mercantalism but favoured the interests of capitalists instead of the monarchy