Competing Schools of Economic Thought (eBook)

Contents 6
Chapter 1: Introduction 12
Introduction 12
Chapter 2: The Origins of Economic Theory 16
Introduction 16
Mercantilism 18
Physiocracy 20
Fundamental Physiocratic Principles 21
The Tableau Economique 22
The Tableau Economique as an Input-Output Model 24
The Single-Tax Scheme 27
Summary and Conclusions 28
Chapter 3: Adam Smith´s Wealth of Nations 31
Introduction 31
The Theory of Moral Sentiments 31
The Market Mechanism 33
The Theory of Value 35
The Making of Economic Science 39
Smith´s Model of Economic Growth 43
The Falling Rate of Profit and the Stationary Economy 47
The Stationary Economy 49
Productive and Non-Productive Labour 52
General Statements on Taxation 55
On Public Debt 58
Summary and Conclusions 59
Appendix: The Labour Commanded Theory of Value 64
Chapter 4: David Ricardo´s Principles of Political Economy 66
Introduction 66
The Theory of (Exchange) Value 67
Modifications due to Unequal Capital-Labour Ratios 70
Modifications due to Changes in Distribution 71
Modifications due to Unequal Turnover Times 72
The Rate of Profit in the Long Run and the Stationary State 74
The Principle of Comparative Advantage 78
On the Question of Machinery 81
Ricardo´s Theory of Taxation 84
Ricardo on Public Debt 87
Concluding Remarks 90
Chapter 5: Karl Marx´s Das Kapital 94
Introduction 94
Commodity Production and Value 96
Concrete and Abstract Labour 97
Socially Necessary Labour Time 98
The Law of Value in Marx 100
Money and Price 101
Surplus Value and Profit 102
Marx´s Theory of Money 104
Convertible Paper Money 107
Non-convertible Paper Money 109
The Transformation Problem 110
Marx´s Solution 112
The Critique of von Bortkiewicz 115
Shaikh´s Solution 116
Marx on Competition 120
Competition Between Industries 121
Competition Within Industries 123
Regulating Capitals 124
The Falling Tendency of the Rate of Profit 125
General Rate of Profit and Economic Crisis 127
Summary and Conclusions 129
Appendix 136
A.1 The Mathematics of the Falling Rate of Profit 136
A.2 The Incremental Rate of Profit and its Components 137
Chapter 6: The Structure of Classical Theory 141
Introduction 141
The Long Period Method of Analysis 143
Given Output 146
Given Technique 146
Given Real Wage 147
The Determination of the Level of Output, or Say´s Law of Markets 149
The Linear Model of Production 150
The Malthus-Ricardo Controversy on Say´s Law 151
Summary and Conclusions 155
Appendix A 158
A.1. The Input-Output Analysis 158
A.1.1 Price Determination 160
A.1.2 A Numerical Example 160
A.1.3 The Marxian Theory of Value and Direct Prices 161
A.1.4 Prices of Production 162
Chapter 7: The Structure of the Neoclassical Theory 164
Introduction 164
The Silent Marginal Revolution 165
Salient Features of the Neoclassical Theory 169
The Model of Pure Exchange Economy 171
A Formal Presentation 179
Walras Law 180
From Pure Exchange to Production 182
Summary and Conclusions 188
Chapter 8: Theory of Capital and Cambridge Controversies 194
Introduction 194
Production with Produced Means of Production 195
Production with Capital and the First Neoclassical Economists 197
Samuelson´s Surrogate Production Function 203
From the One-Commodity World to the Real Economy 208
Wicksell Effects 213
Summary-Conclusions 214
Chapter 9: Between Competition and Monopoly 220
Introduction 220
Neoclassical Theory and Perfect Competition 221
Economies of Scale 224
Cost Curves 226
Sraffa´s Critique of the Marshallian Theory of the Firm 229
Model Differentiation: Robinson Vs. Chamberlin 232
The Rise and Fall of a Revolution 240
Summary and Conclusions 244
Appendix A 248
Full Cost Pricing of Hall and Hitch 248
Chapter 10: Keynes´s General Theory 250
Introduction 251
The Principle of Effective Demand 252
The Income Determination Model 254
The Marginal Efficiency of Capital 258
The Falling MEC 259
The Liquidity Preference Theory 263
Money Rate of Interest and Returns on Assets 267
The Effects of Wage Reduction 270
Keynes on Economic Policy 271
Summary and Conclusions 273
Chapter 11: The Neoclassical Synthesis 278
Introduction 278
Hicks´s Analysis of IS-LM 279
Hicks and Keynes 283
Modigliani´s Synthesis 286
Summary and Conclusions 289
Chapter 12: Disequilibrium Macroeconomics: From Its Brief Ascent to the Rapid Decline 293
Introduction 293
Walrasian Vs. Keynesian Models 294
Effective Demand and Notional Demand 295
The Microeconomic Foundations of Disequilibrium Macroeconomics 298
The Effectiveness of Economic Policy 301
The Critique of Richard Kahn 303
Summary and Conclusions 303
Chapter 13: The Rise and Fall of Monetarism 307
Introduction 307
The Phillips Curve 308
Short-Run and Long-Run Phillips Curve 309
Expectations-Augmented Phillips Curve 312
Quantity Theory of Money and Monetarism 313
Friedman´s Demand for Money 317
The Monetarist Approach to the Balance of Payments 319
Economic Policy Conclusions 321
Keynesian Responses 323
Summary and Conclusions 326
Chapter 14: New Classical Macroeconomics 331
Introduction 331
The Rational Expectations Hypothesis 333
Continuous Market Clearing 335
The Lucas Supply Curve 336
The New Classical Economics and the Business Cycle 338
The Ineffectiveness of Government Intervention 340
Barro´s Ricardian Equivalence Theorem 341
The Lucas Critique 343
Concluding Remarks 344
Chapter 15: The Real Business Cycles Approach 348
Introduction 348
Salient Features of the RBC Approach 349
A Short Historical Excursion 351
Economic Growth and Cycles 354
Shocks in Technology 356
Simulation Models 358
Economic Policy Implications 359
Summary and Concluding Remarks 362
Chapter 16: The Return of (New) Keynesian Economics 367
Introduction 367
Nominal Rigidities 368
Real Rigidities 371
Models of Implicit Contracts 373
The Efficient Wage Hypothesis 374
The Insider-Outsider Hypothesis 375
Economic Fluctuations 376
Fluctuations Caused by Nominal Rigidities 376
Fluctuations Caused by Uncertainty 378
New Consensus Macroeconomics 379
Policy Implications 382
Summary and Conclusions 383
Chapter 17: Economic Theory in Historical Perspective 386
Introduction 386
Core Characteristics of Competing Economic Theories 387
Elements for a New Direction 395
References 397
Index 415