ECN 3111

1. ECN 3111 History of Economic Thought INTRODUCTION

2. 1.1 Reasons for studying History of Economic Thought • Gives economist a better understanding and better appreciation of contemporary economic issues. • Economics thoughts and economic policies change in response to social and economic issues • But many economic problems remain the same. • Insights and solutions evolved overtime.

3. 1.2 The Roots of Economic Thoughts • “The early strands of economic thinking can be linked to antiquity” according to Grant / Brue; 2007. • The word economicscomes from a Greek word “oeconomicus” meaning “management of household”. • The period before the 1500A.D. several “economist”/Philosophers have their own interpretations about economics.

4. The Roots of EconomicThoughts – Before 1500 A.D. • Aristotle(384-322 B.C.) participated in the economic thinking by differentiating natural and natural art of acquisition. • Natural acquisition: e.g. activities like farming. Fishing, and hunting – producing goods for life necessities. • Unnatural acquisition: acquiring goods beyond what one actually needs.

5. The Roots of EconomicThoughts – Before 1500 A.D. • Plato (427-447 B.C.) wrote on the “benefits of human specialization within an ideal city state” – which later repeated by Adam Smith in the division of labor. • His book contains several economic thoughts including his opposition towards lending with interest.

6. The Roots of EconomicThoughts – Before 1500 A.D. • St. Thomas Aquinas (1225-1274) he wrote on the idea related to price • His idea is that neither the buyer nor the seller should take advantage of one another.

7. The Roots of EconomicThoughts – Before 1500 A.D. The period before the 1500A.D. is a period (epoch) where there was very little trade. Most goods are produced for self consumption. Money and credits were not widely used. Strong national states and integrated national economies were not fully developed and not yet fully evolved No schools of economic thoughts had been formed.

8. The Roots of EconomicThoughts – After 1500 A.D. • Market and trade expands with great geographical explorations • Money economy superseded the self-sufficient economy. • National states with unified economies became dominant forces. • Economic schools arose representing systematic bodies of thought. • Policy has been formed.

9. The Roots of EconomicThoughts – After1500s • is known as the “age of political economy” 1500 A.D. • The focus is more on the coherence organization of the economic thinking – turning the fragments of the economic ideasinto systematic theories.

10. The Roots of EconomicThoughts – After1500s • The economic thinking has displayed a significant degree of continuity over centuries. • Founders of new theories may draw from the ideas of their predecessors and developed them further. • There are also some which oppose to the earlier ideas and further develop their own thinking towards new directions.

11. The Roots of EconomicThoughts – After1500s • Therefore we see that numerous modern ideas have some similarities to the never-adopted or long repudiate concepts of past epoch. • E.g. the supply-side economics of the US in the 1980s return to domestic good standard, an idea that was promoted by economist and adopted by nations in the 1800s (but fell out of favor following the depression period of the 1930s.

12. The Roots of EconomicThoughts – After1500s • E.g. The idea of human capital – developed by Adam Smith and John Stuart Mill lay dormant until it was revitalized and expand further by Theodore Schultz and Gary Becker in post-1960. • E.g. The gloomy pronouncements by Thomas Robert Malthus in 1978 are now heard in a modified form by a handful of economists in the 1970s who predicted that shortages of resources would soon come about and the world economy is going to collapse.

13. The Roots of EconomicThoughts – After1500s • E.g. The emergence of the new classical macroeconomics in the 1980s and 1990s, appearing as a challenge to the prevailing Keynesian views, repackaged some of the old classicism of the previous century.

14. The Roots of EconomicThoughts – After1500s • Hence, economic theory of economic thought seems to move in spiral (not in circles). • Economic theories and policies frequently do return to similar one of the earlier era, but hey are on different planes under different conditions. • The difference are as significant as the similarities – both are worth examining.

15. 1.3 Economics is a science • Economics is not an exact science like the natural sciences e.g. physics, chemistry etc. • Economics cannot be conducted in a laboratory or under controlled conditions. • Economy is a social science – studying various economic activities in society. • There is no controlled experiments on society • Data are collected from the society as and when events occur and they are analyzed through the application of models, statistics and econometrics to perceive the underlying relationships.

16. Reasons for studying History of Economic Thought • Society changes through time due to advances in science and technology. • With regard to economic theory – • First, it allows us to gain an understanding of how an economy works. • Second, the economic theory helps society to reach its economic goals. Society progresses faster in achieving economic goals through knowledge in economics.

17. Reasons for studying History of Economic Thought • With regard to economic thoughts; • First, such study enhance one’s understanding of the contemporary economic thought. Mark Blaugh, “contemporary theory wears the scars of yesterday’s problems now resolved, yesterday’s blunders now corrected, and cannot be fully understood except as a legacy handed down from the past.

18. Reasons for studying History of Economic Thought • Second. Vast amount of analysis and evidence that economist have generated over the decades, can be used as closer check on any irresponsible generalizations. • This should help us in making fewer errors than in the past when making personal decisions and when formulating national and local economic policies.

19. Reasons for studying History of Economic Thought • Finally, above all it provides perspectives and understanding of our past, of changing of ideas and problems and of our direction. • It helps us appreciate that no group has the monopoly on the truth and that many groups and individuals have contribute to the richness and diversity of our intellectual, cultural and material inheritance.

20. Reasons for studying History of Economic Thought • A study of the evolution of the economic thoughts and the changing social background associated with it can illuminate changes in other areas, such as politics, arts, literature, music philosophy and science. • On the other hand the understanding of these areas of knowledge can help to explain the changing of the economic ideas.

21. The Main School of Thoughts • Some of the man school of thoughts are shown below in chronological order: • Mercantilist School 1500 to 1776 • Physiocratic School 1756 to 1776 • Classical School 1776 to 1871 • Marginalist School 1871 to 1890 • Neoclassical School 1890 to present time • Keynesian School 1836 to present time • Chicago Monetarist School 1948 to present time