Download
1 / 13
130 likes | 306 Views
Cantillon and Smith. ECON 205W Summer 2006 Prof. Cunningham. Richard Cantillon (1680?-1734). Some proponents say that his was the first systematic treatise on economics. Great influence on Smith?
E N D
Cantillon and Smith ECON 205W Summer 2006 Prof. Cunningham
Richard Cantillon (1680?-1734) • Some proponents say that his was the first systematic treatise on economics. • Great influence on Smith? • He was an Irishman with a Spanish name who lived in France, but whose book was published in England.
His Treatise • Essays on the Nature of Commerce in General • Attempted to reduce economics to a few elementary principles. • Emphasis on monetary concerns. • Concept of equilibrium across markets. • Mechanical linkages across economic elements, driven by individuals pursuing self-interest. • Motivated by Newton’s writings on mechanics in physics. • Modern method.
Treatise (2) • Land is the source of all material value. • Three parts: • I. Relates economic structure, wages, population, and value. • II. Money, exchange, interest, prices. • III. Foreign Exchange and equilibrium of money markets.
Adam Smith (1723-90) • Born in Kirkcaldy, Scotland (near Edinburgh). • His nature and background. • Studied at Glasgow under Hutcheson, professor of moral philosophy and head of the Scottish Naturalist School. • Attended Oxford for 6 years. • 1750, took the Chair of Logic at Glasgow College. • 1752, took the better paying job of Chair of Moral Philosophy
Smith (2) • 1759, Theory of Moral Sentiments • 1776, An Inquiry into the Nature and Causes of the Wealth of Nations • 1790, Died.
Theory of Moral Sentiments • Moral philosopher looking at the total range of human conduct. • The sentiments • Self-love • Sympathy • Love of labor • Propensity to “truck and barter” • Sense of propriety • Desire to be free
Wealth of Nations • Five books: • 1. Production and distribution with special reference to labor • 2. Capital and Accumulation • 3. Economic development and policies to aid it • 4. Different systems of political economy • 5. Public finance
Role of Government • Government should only do what people cannot do individually: • Provide justice (protect property rights) • Provide defense • Maintain public works and institutions that would not be maintained for lack of a profit motive. (Public goods) • Minimal intervention in the economic sphere.
Labor • Productive vs. nonproductive labor • Nonproductive=producing services • Division of labor (pin factory) • Arises because of the propensity to truck and barter • Not due to any difference in human ability. • Limited only by the extent of the market. • Specialization and division of labor are necessary for productivity gains • Specialization not only by skills.
Exchange • Division of labor leads to exchange • Real price, natural price, just price • Market price may deviate from the natural price. Adjustment processes. • Compares “values in exchange” with “values in use” • Labor theory of value
Wages and Interest • Wages related to wage fund concept. • Lending and interest • No problem with this. • Fails to recognize that savings may fail to be invested, or that there may be time lags. • Under conditions of perfect mobility, the balance of advantages and disadvantages of different jobs will become equal.
Foreign Trade • Prefers domestic trade to foreign since it supports a greater quantity of domestic labor. • Foreign trade increases the extent of the market. • Absolute advantage. • Rejects several arguments for protectionism. Tends to favor free trade.
