Introduction of the History of Economic Thought

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The History of Economic Thought
• The period before A.D 1500 represented an epoch far different from the 1500s to the present. • Before A.D 1500:
 There was little trade  Most goods were produced for own consumption.  Money and credit were not widely used  Strong national states & integrated national economies had not yet fully evolved  No schools of economic thought had been formed

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• After 1500:
 Markets & trade expanded rapidly with the great geographical exploration both resulting from this process & accelerating it.  The money economy superseded the self-sufficient economy.  National states with unified economies became dominant forces.  Economic schools arose, representing systematic bodies of thought and policy formation. 106

• In the 1500s, “the age of political economy” began to supplant “the age of moral philosophy”. • The focus on political economy brought with it:  a more coherent organization of economic thinking  Turning fragments of economic ideas into systematic theories.

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A TIME SCALE OF ECONOMIC IDEAS
• Economic thinking has displayed a significant degree of continuity over the centuries. • The founders of a new theory:  may draw on the ideas of their predecessors & develop them further  May react in opposition to earlier ideas that stimulate their own thinking in new directions. • These relations among different school of thought are depicted in the Time Scale of Economic Ideas

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Each rectangle in the Time Scale represents a major school or approach  Mercantilism, Physiocracy, Classicism, Marxism & Socialism



The name in each rectangle are economists who were most important or most typical in developing that school or approach.    Mercantilism (Mun, Colbert) Physiocracy (Quesnay, Turgot) Classicism (Adam Smith, Ricardo, Malthus, Bentham, Say, Mill) 109

• The name immediately above each rectangle are forerunners of the school.  Classicism (North, Cantillon)  German Historicism (List)  Marxism & Socialism (Sismondi)

• A black arrow shows that the latter group was antagonistic to or rose in opposition to the earlier group.  Physiocrats were completely opposed to the doctrines of the Mercantilist.

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• A white arrow linking 2 rectangles shows that the later group was generally friendly to the group from which it grew or that it superseded.  Classical School were friendly toward the Physiocrats.

• A dashed arrow indicates groups in which some contributors were friendly to predecessors, but others were antagonistic.  Some welfare economists advanced marginalists ideas, whereas others challenged those ideas. 111

THE FIVE MAJOR QUESTIONS
• As each school of economic thought is introduced, 5 major questions about it will be considered. This method will provide perspective on the school and the social background that produced it. This concise summary at the outset will help clarify the main points as we study the ideas on the leading economists. 112





FIVE MAJOR QUESTIONS
1. What was the historical background of the school ? 2. What were the major tenets of the school ? 3. Whom did the school benefit or seek to benefit ? 4. How was the school valid, useful, or correct in its time ? 5. Which tenets of the school became lasting contributions ?

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1. What was the historical background of the school ?
Relativist Approach • Some economists assign primary importance to the social, political and economic environment for shaping the nature of the questions economists ask, and hence the content of the economic theories that emerges during a particular period. • According to them, what is “true,” or useful, in one time or place may or may not be useful in some other time or place. For example: 114

1. What was the historical background of the school ?
• The Mercantilist school promoted nationalism, gave new dignity and importance to the merchant, and justified a policy of economic and military expansion...
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