Economic Ideas

Adam Smith: Invisible hand

Physiocratic: protection of free market

Protectionism oppositive of the free market

Liberalism is the opposite of the absolutism

Mercantilist  defendors of the protection of the market

SCHOLASTICS  16th century

- The objective is not to analyze the economic activity but to prescribe rule
o Is it ethical to be rich?  religious of the moment
- Economics said: The is an opportunity cost of lending money to other 
it’s correct to charge an interest
- Observes the relationship between money and prices.

MERCANTILISM  how to achieve the economic strength of the State

- Expansion of the nation trade  the concept of mercantilism was born.
o Main idea: Accumulation of precious metals to gain wealth
 To have trade surplus  inflow of precious metals
 Colonialism
o They were in favor of the protectionism in order to reduce the
imports and have more trade surplus.
o Population: increase in population
 They saw the that the State can be stronger if they increase
the population (to have more workers)
- Aim was not to explain how economic works but to expand the nation
state.
- Main problem: confuse income and wealth
o Objective is to produce more and not to accumulate
- Criticism:
o D.Hume  price-specie flow  trade surplus  + precious
metals = + money supply  inflation  trade deficit
o Smith (liberal economist) and the classical economists:
International trade  net gains, there are benefits for every
country
 Protectionism is a zero-gain game.
o Schumpeter: mercantilism was a pre-analytical school.
o Keynes: importance of the government and the possibility that a
monetary stimulus had real effects
 Mercantilism was not that bad.

PHYSIOCRACY
 - Frist school of economics (economists that tries to reach a common
goals and gets a similar conclusion) physiocratic  there is natural
law/order that shouldn’t be
o Criticize colonialism
o Agriculture is the only sector generating growth.
- Influenced by
o Physics and biology.
 Objective of economics is to discover the natural law 
functioning of the different sector with the same ideology of
physics and biology
o Rationalism
- Tableuau économique

CLASSICAL ECONOMISTS  favor of free trade

- Influenced by the Adam Smith’s book
- Smith one of the most optimistic, Ricardo, Malthus, Say Sismondi, J.S.
Mill
- They were pessimists 
o The growth is limited (in the long run)= stationary state because of
the diminishing return
o Capacity of demografic growth much higher than economic growth
o Wages: always in the subsistence level
- How to increase growth in the short-term: specialization and labor
division
o Need trade
- Key ideas:
o Principle of Self-interest
o Free trade
o Capital accumulation
o Labour theory of value  why things have value
 Things have a value because labor are needed to produce
them
 P=Mg C=Mg utility  recent theory based on the supply
and demand curve
o Theory of population  negative consequences  condenance to
poverty
o Principle of diminishing returns and theory of distribution
 Profits tends to fall  subsistence wage
o Stationary state
o Bronze law of wages  wages will no increase
- Say and Ricardo  impossibility of global crisis = every supply produces
its demand
 - Malthus and Sismondi  not everything produced is spent = demand
crisis
- Mill  the stationary state  opportunity to change the organization
- Marx  change to socialism and then to communism
o Explained why capitalism is condemned to collapse.

MARX
- He was a classical economists
- Historical materialism (influenced of the Hegelian dialectics)
- Theory of value:
- Surplus value: difference between the real wage and the real value
created by the worker. Capitalists can obtain profits from workers 
explotation
- Capitalism is condemnet to collapse because there is are diminishing
return and there is a need of accumulation and capital concentration