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Smith Flashcards

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1
Q

What were the first examples of economic theory?

A

Mercantilists and Physiocrats

These theories emerged during the Scientific Revolution and political shifts towards liberal ideas.

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2
Q

What did Physiocrats emphasize in their economic theory?

A

Agricultural production and competition

They believed nature could help produce a surplus.

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3
Q

What was the main focus of Mercantilists?

A

Monopolies and state intervention

They were concerned with accumulating precious metals and trade surplus.

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4
Q

How did Mercantilists and Physiocrats differ conceptually?

A

Mercantilists emphasized trade, while Physiocrats emphasized production processes

Physiocrats believed nature could produce a surplus, unlike Mercantilists.

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5
Q

Who is considered the first classical political economist?

A

Adam Smith

He introduced the importance of the individual and beneficial competition.

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6
Q

What is the classical period in economics defined by?

A

The period from Adam Smith until roughly John Stuart Mill

This period precedes the emergence of Neoclassical economics.

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7
Q

What is a key difference between classical and neoclassical economists?

A

Methodology: Neoclassical economists use mathematical methods, while classical economists use logical methods

Classical economists focus on powerful philosophical insights.

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8
Q

What does classical economics analyze?

A

Economic growth and its determinants

Classical economists theorized that economic surplus comes from production.

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9
Q

According to Physiocrats, what determines the surplus in production?

A

Nature is responsible for the surplus

They believed nature multiplies inputs in agricultural production.

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10
Q

What defines capitalist production according to the text?

A

The initial stock of capital allows individuals to start a capitalistic production

Entrepreneurs hire workers and buy raw materials and machines in advance.

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11
Q

What wage do employers typically pay workers in capitalist production?

A

Subsistence wage

This wage allows workers to buy necessities.

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12
Q

What is the role of profits in the production process?

A

Profits are a residual element of the production process

They measure the contribution of production activity to society’s total product.

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13
Q

What are the two key elements in the first economic theories?

A

Production and distribution

Distribution refers to how income is shared among individuals in the economy.

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14
Q

How did Mercantilists and Physiocrats define value?

A

Mercantilists: value is precious metal accumulation; Physiocrats: value is surplus from agricultural production

Classical economists considered more fundamental processes for determining value.

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15
Q

What concept did the Scottish Enlightenment focus on?

A

Reason, inquiry, and the pursuit of knowledge

It was a period of intense intellectual and scientific activity.

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16
Q

What was the closest discipline to economics during the Scottish Enlightenment?

A

Moral Philosophy

It studied human behavior and principles guiding it.

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17
Q

What are the historical stages of social organization according to the Scottish Enlightenment?

A

Hunter/gatherer > pasture > agrarian > exchange economy

This reflects an evolutionary theory of social organization.

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18
Q

What was the Act of Union (1707)?

A

It embedded Scotland with the UK and GB

This created political tension regarding independence.

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19
Q

Who were key authors during the Scottish Enlightenment?

A

Francis Hutcherson, David Hume, and Sir James Steuart

Each contributed significantly to moral philosophy and political economy.

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20
Q

What concept did David Hume introduce in his Political Discourses?

A

Quantity theory of money

He argued that the strength of a state is derived from labor and commerce.

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21
Q

What is the concept of double competition introduced by Sir James Steuart?

A

Competition between firms and consumers

It emphasizes that consumers also compete for products.

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22
Q

What principle does Sir James Steuart argue is the main driver of human action?

A

Self-interest

This principle is crucial for understanding profit motives and capitalism.

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23
Q

What are the notable works of Adam Smith?

A

The Theory of Moral Sentiments and An Inquiry Into The Nature And Causes Of The Wealth Of Nations

These works laid foundational concepts in economics.

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24
Q

What is the main driver of economic growth according to Adam Smith?

A

Division of labour

It allows workers to specialize, increasing efficiency and innovation.

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25
How does Smith distinguish between natural price and market price?
Natural price is determined by the cost of production, while market price fluctuates based on demand ## Footnote This distinction is central to his theory of value.
26
What does Adam Smith believe about government activities?
They are unproductive ## Footnote He argued that they do not produce material value and should not be taxed to avoid hindering productive activities.
27
What is the main generator of value according to the Theory of Value?
Labour ## Footnote Labour is seen as the primary source from which value is derived, distinguishing between natural price and market price.
28
What are the two types of value discussed by Smith?
* Value from use (utility) * Value in exchange (agreed price) ## Footnote Value from use refers to the utility of a commodity, while value in exchange pertains to the market price agreed upon by traders.
29
What concept does Smith introduce regarding the distribution of resources in society?
Natural rates ## Footnote Natural rates determine how income generated in a country is split among workers, capitalists, and landowners.
30
How does the division of labour contribute to economic growth?
It allows for higher productivity and efficiency in production ## Footnote Specializing labour through division increases the quantity and quality of goods produced.
31
What is the limit to the division of labour?
The amount of physical capital available ## Footnote Without expanding the number of machines or tools, the division of labour cannot increase indefinitely.
32
True or False: Competition, according to Smith, restricts trade.
False ## Footnote Smith argues that competition fosters trade and increases productivity by expanding the division of labour.
33
What defines productive labour?
Labour that is paid directly from capital ## Footnote Productive labour generates surplus and profit that can be reinvested.
34
Fill in the blank: Unproductive labour is defined as labour that is _______.
intangible and cannot be directly quantified ## Footnote Unproductive labour refers to services or labour paid out of revenue rather than capital.
35
What is the relationship between market prices and natural prices?
Market prices can fluctuate, while natural prices reflect the true value based on production costs ## Footnote Natural prices are considered stable and reflect the sum of wages, rents, and profits.
36
What does Smith believe is the real measure of exchangeable value?
Labour ## Footnote The value of a commodity is linked to the quantity of labour that enables its purchase or command.
37
What is the labour theory of value?
The value of something is determined by the amount of labour embedded in it ## Footnote It links the value of commodities to the labour required for their production.
38
According to Smith, what happens to wages during economic expansion?
Wages tend to increase ## Footnote Increased demand for labour during expansion leads to higher wages, affecting the distribution of income.
39
What does Smith identify as a natural minimum limit for wages?
Subsistence wage ## Footnote This is the minimum amount needed for workers to maintain their health and productivity.
40
What happens to rents during an expansionary phase of the economy?
Rents tend to increase ## Footnote Population growth and higher wages lead to increased demand for land, raising rents.
41
What is the relationship between profits and wages according to Smith?
There is an inverse relationship ## Footnote As wages increase, profits tend to decrease, indicating a zero-sum dynamic.
42
What is the significance of the division of labour in complex societies?
It increases reliance on others for goods and services ## Footnote In a society with division of labour, individuals depend more on the contributions of others.
43
What does Smith mean by the term 'natural price'?
The price that covers wages, rents, and profits at their natural rates ## Footnote Natural price reflects the true cost of production and is considered stable over time.
44
How does Smith view the role of the market in regulating the division of labour?
The market's needs and demand dictate the level of specialization ## Footnote A wider market allows for greater division of labour and specialization.
45
What does Smith conclude about the employment of labour in society?
It often becomes confined to a few simple operations ## Footnote This can lead to a loss of understanding and skill among workers if not addressed by government intervention.
46
What is the relationship between rent and profits according to Adam Smith?
Rent is another component in conflict with profits.
47
What does Adam Smith identify as a significant factor in an expanding economy?
The resources devoted to replace or reproduce existing levels of capital.
48
What are maintenance costs in the context of capital?
Costs associated with capital depreciation and obsolescence.
49
How does an expansionary phase affect profits according to Smith?
It tends to decrease profits due to higher maintenance costs.
50
What is the definition of gross revenue?
The whole annual produce of land and labour.
51
What is net revenue?
Net revenue = gross revenue - maintenance expenses.
52
Why is net revenue important for capitalists?
It constitutes the incentive for capitalists to continue expanding their business.
53
What does Smith say about competition and profits?
Competition tends to decrease profits over time.
54
What does the law of motion of the economy state?
Profits tend to decrease and equalize across industries over time.
55
True or False: According to Smith, the accumulation of capital leads to a static economy.
True.
56
What is one of Smith's key beliefs regarding government intervention?
The government should intervene as little as possible to promote economic growth.
57
What is the main goal of society according to Smith?
To promote economic growth that benefits all classes.
58
What does Smith suggest about removing obstacles to growth?
The government should remove all constraints to growth, including protectionism.
59
What did Smith think about the Poor Laws?
They immobilized resources by maintaining unemployed individuals instead of reinvesting in the economy.
60
What is the 'invisible hand' concept?
Individuals pursuing their own self-interest inadvertently promote societal benefits.
61
What type of income does Smith believe should be taxed?
Rent, as it is received without productive activity.
62
Fill in the blank: According to Smith, public debt is considered _______.
pernicious.
63
What does Smith think about budget deficits?
They should be avoided; taxation is the only proper way to raise funds.
64
What is a key contribution of Adam Smith to economic theory?
A comprehensive and integrated view of the economic process.
65
What does Smith argue about the relationship between wages and profits?
Wages tend to increase, which erodes the profit share.
66
What does Smith imply about the role of competition in the economy?
It fosters effective competition, which is functional to growth.
67
What does Smith believe about taxation on luxury goods?
They should be taxed as they are consumed by those receiving unproductive income.
68
True or False: Smith believed that civil servants and services are productive.
False.
69
What does Smith suggest about the effects of government intervention?
It can divert economic activity from its natural course.
70
How does Smith describe the market mechanism?
Impersonal, with no one in charge, driven by individual self-interest.
71
What does Smith say about the accumulation of capital and the division of labour?
It increases up to a certain point but can stagnate due to maintenance costs.

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