Econ 110 Notes

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The ideas of economists and political philosophers,
both when they are right and when they are wrong,
are more powerful than is commonly understood.
Indeed, the world is ruled by little else. Practical
men, who believe themselves to be quite exempt from
any intellectual influences, are usually the slaves of
some defunct economist.
J.M. Ke yn es , T he General Theory , [ p 3 8 3 ]

C hapter 1

AN INTRODUCTION TO THE HISTORY OF
ECONOMIC THOUGHT:
AN OVERVIEW
In every society it is necessary that there be a process to organize and coordinate choices regarding the production, distribution and consumption of goods and services. The need for this process arises because: • our resources or inputs are finite at any moment in time, • our technical knowledge constrains our ability to utilize these resources to produce goods and services,

• individuals, organizations, social institutions, business and governments may constrain output,
• in Western societies, wants or desires of individuals or groups are shaped by cultural or physical forces and often exceeds the availability of economic goods and services.
Ideally, these relatively scarce resources should be allocated to their “highest valued use.” A solitary individual who knows her/his preferences will typically use resources to satisfy those preferences to the greatest extent possible within constraints. This requires information, knowledge and choices about which goods and services should be produced and how to best produce them. Daniel Defoe’s [1659 (?60)-1731]

Robinson Crusoe [1719] was a tale of a solitary individual, endowed

with scarce resources, and the challenges he faced. When Friday enters the story, their lives and the allocation problem are altered. When individuals live in social groups it becomes necessary to distribute the goods among the individuals as well as choosing which goods and services to produce. In the jargon of the economist, it is necessary





to decide
What should be produced?
What is the best way to produce it?
Which individuals should get which goods and services?

(c) R. Larry Reynolds

A History of Economic Thought - Chapter 1

Introduction – Page 1

Among the classics of literature are stories of the social and individual effects of the processes of allocation. Victor Hugo’s [1802-1885] Les Misésrables [1862] and many of the Charles Dickens [1812-1870] stories are examples. The method that a society devises to answer these questions shapes the nature of society and influences the answers to the questions. There are many possible approaches to organizing economic activities of individuals living in social systems. Whatever method is chosen, it is necessary to coordinate or integrate the behavior of individual members of the society. The history of economic thought is a study of the more important attempts to analyze, describe and explain the relationships in actual or idealized economic systems. Knowledge of alternative explanations of economic processes provides a basis for evaluating the performance of industrial economies. It also provides a basis for critically evaluating economic theories and models that purport to describe modern industrial economies.

ECONOMICS
Economics is the study of how a society organizes the economic functions or processes. There are many definitions of economics. Jacob Viner is credited with defining it as, “Economics is what economists do.” This is correct but not a very useful definition. As one of the early architects of modern economics, Alfred Marshall defined economics as:

“Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and use of the material requisites of wellbeing.

Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man.” [Marshall, p 1] More recently, in a...
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