History of Economics
Summary of all lectures
Radboud University Nijmegen
Yoël Guijt
,Week 1
Mercantilism
Mercantilism: 1500-1800
* Enormous growth of trade in this era. Nations are more and more important.
* Cities grew, more and more money and trade increased.
* All nations tried to become the biggest in terms of trade
* The source of wealth is Gold and Silver (=theory)
* To become wealthier; TRADE (=policy)
* The main idea is to have a positive Balance of Trade = Exports > Imports
* Taxes on foreign export; Supporting exports/imports for others; Exporting manufacturing
goods instead of raw materials; More productive population = more competitive
* A more protectionist view (less imports, more exports; More Gold = Rich)
* Countries become rich at the expense of others. Value of a country = Gold and Silver
* Nationalism is important, be stronger than others for more colonies; MILITARISM important
* Free importation of raw material not produced at home; export restrictions on raw materials
* = Fear of goods
* No tolls, taxes on the movement of goods: could drive up the price of goods in the country
* Strong government! High quality of goods for exports, import tari s, export subsidies
* Importance of a large hard-working society; supply high, wages low, price low.
* Importance of international trade; Balance of Trade; Economic growth by expanding the market
Week 2
Physiocrats, David Hume, (Classical School) Adam Smith (+invisible hand)
Physiocratism: 1756-1776
* Mainly focus on Agriculture: that is the source of value in an economy
* Source of value: Agricultural surplus (space for agriculture). Soil can produce value! (=theory)
* Industry and trade are useful, but they reproduce value. Only agriculture produces surpluses.
* Policy: development of agriculture can make countries richer
* Laissez-Faire: freedom of production and exchange of goods — where and whenever they
want, at the end, soil will be free for production. Let people do what they want!
* Natural order: No need for intervention of the government — there is some sort of order.
* Nature govern humans, just as Law of Gravity — govern the physical world
* More and more Liberalism: free trade, e cient use of soil and agriculture
* Diminishing Returns: the more land, the less extra output.
* Landowners will be taxed; rents for surpluses on soil.
* In the end this was wrong, also industry and trade gave more value…
* Shortcoming: Overcrowding; mankind and need for food would grow to fast in comparison to
the available agricultural sources
* Mostly bene ted capitalistic rms, using advanced technology and waged labor.
* Physiocrats made clear that there is a debate about the role of the government, what to do??
fi fi ffi ff
, David Hume: (Classical School) 1711-1776
* Criticism on Mercantilism: Not about the quantity of Gold and Silver
* It is all about the quantity in respect to the size of the country and the Need for Gold.
* Too much Gold will lead to higher prices = in ation (mercantilists didn’t account for in ation)
* In ation? Prices go up, exports go down, imports go up — Worsens the Balance of Trade !
* Imports more expensive, too much money abroad, more poverty and bankruptcy
* Price specie- ow mechanism — in ation if too much gold — NO POSITIVE BALANCE
* Without government intervention, price-levels would lag behind changes in money.
* Only after a little time more money would mean in ation.
* Economy would eventually be back to equilibrium — no longer the case since money doesn’t
depend on gold anymore
* Trade is a positive sum game, not a zero-sum game as the mercantilists said
Adam Smith: (Classical School) 1723-1790
* Moral Sentiments: Moral forces bind people together; actions come from our nature
* Self-interest: we want to look after ourselves.
* Sympathy between individuals will lead to sel shness, to be together
* Wealth of Nations: How individuals are guided and limited by economic forces —
* The social competitiveness will drive them to social wealth
* Total wealth is the annual product.
* Division of Labor: people specialize in tasks, higher e ciency. More productivity, value and
wealth; time is saved, more skilled and new machinery for tasks
* Shortcomings: Only focus on 1 task, will be boring; decrease in e ciency
* Invisible hand: will make sure all self-interest will make markets e cient/in equilibrium
* Through competition, prices will decrease and reduces pro ts.
* Everyone must act to its self-interest
* Should be no government intervention — specialize in producing goods with absolute
advantage.
* Government should — protect society from attacks; establish justice; maintain public works
* Taxes needed: proportional to revenue; collected at minimum cost; levied at the right time
* Two types of Value — Value in Use (utility of it) and Value of exchange (purchase other goods)
* Water-diamond paradox: High Value in Use is Low Value in Exchange
* Value of exchange: determined by ‘cost of production’
* Primitive Economy: Labor Cost Theory — Value is determined by labor and productivity
* Advanced Economy: Capital developed — Not only Cost of Labor, also: Pro t, Wage, Rent
* Natural Price: exactly enough revenue to pay these natural wages, rent and pro t (minimum in
the Long run, below this, they stop producing)
* Market Price: actual price — supply and demand
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Summary of all lectures
Radboud University Nijmegen
Yoël Guijt
,Week 1
Mercantilism
Mercantilism: 1500-1800
* Enormous growth of trade in this era. Nations are more and more important.
* Cities grew, more and more money and trade increased.
* All nations tried to become the biggest in terms of trade
* The source of wealth is Gold and Silver (=theory)
* To become wealthier; TRADE (=policy)
* The main idea is to have a positive Balance of Trade = Exports > Imports
* Taxes on foreign export; Supporting exports/imports for others; Exporting manufacturing
goods instead of raw materials; More productive population = more competitive
* A more protectionist view (less imports, more exports; More Gold = Rich)
* Countries become rich at the expense of others. Value of a country = Gold and Silver
* Nationalism is important, be stronger than others for more colonies; MILITARISM important
* Free importation of raw material not produced at home; export restrictions on raw materials
* = Fear of goods
* No tolls, taxes on the movement of goods: could drive up the price of goods in the country
* Strong government! High quality of goods for exports, import tari s, export subsidies
* Importance of a large hard-working society; supply high, wages low, price low.
* Importance of international trade; Balance of Trade; Economic growth by expanding the market
Week 2
Physiocrats, David Hume, (Classical School) Adam Smith (+invisible hand)
Physiocratism: 1756-1776
* Mainly focus on Agriculture: that is the source of value in an economy
* Source of value: Agricultural surplus (space for agriculture). Soil can produce value! (=theory)
* Industry and trade are useful, but they reproduce value. Only agriculture produces surpluses.
* Policy: development of agriculture can make countries richer
* Laissez-Faire: freedom of production and exchange of goods — where and whenever they
want, at the end, soil will be free for production. Let people do what they want!
* Natural order: No need for intervention of the government — there is some sort of order.
* Nature govern humans, just as Law of Gravity — govern the physical world
* More and more Liberalism: free trade, e cient use of soil and agriculture
* Diminishing Returns: the more land, the less extra output.
* Landowners will be taxed; rents for surpluses on soil.
* In the end this was wrong, also industry and trade gave more value…
* Shortcoming: Overcrowding; mankind and need for food would grow to fast in comparison to
the available agricultural sources
* Mostly bene ted capitalistic rms, using advanced technology and waged labor.
* Physiocrats made clear that there is a debate about the role of the government, what to do??
fi fi ffi ff
, David Hume: (Classical School) 1711-1776
* Criticism on Mercantilism: Not about the quantity of Gold and Silver
* It is all about the quantity in respect to the size of the country and the Need for Gold.
* Too much Gold will lead to higher prices = in ation (mercantilists didn’t account for in ation)
* In ation? Prices go up, exports go down, imports go up — Worsens the Balance of Trade !
* Imports more expensive, too much money abroad, more poverty and bankruptcy
* Price specie- ow mechanism — in ation if too much gold — NO POSITIVE BALANCE
* Without government intervention, price-levels would lag behind changes in money.
* Only after a little time more money would mean in ation.
* Economy would eventually be back to equilibrium — no longer the case since money doesn’t
depend on gold anymore
* Trade is a positive sum game, not a zero-sum game as the mercantilists said
Adam Smith: (Classical School) 1723-1790
* Moral Sentiments: Moral forces bind people together; actions come from our nature
* Self-interest: we want to look after ourselves.
* Sympathy between individuals will lead to sel shness, to be together
* Wealth of Nations: How individuals are guided and limited by economic forces —
* The social competitiveness will drive them to social wealth
* Total wealth is the annual product.
* Division of Labor: people specialize in tasks, higher e ciency. More productivity, value and
wealth; time is saved, more skilled and new machinery for tasks
* Shortcomings: Only focus on 1 task, will be boring; decrease in e ciency
* Invisible hand: will make sure all self-interest will make markets e cient/in equilibrium
* Through competition, prices will decrease and reduces pro ts.
* Everyone must act to its self-interest
* Should be no government intervention — specialize in producing goods with absolute
advantage.
* Government should — protect society from attacks; establish justice; maintain public works
* Taxes needed: proportional to revenue; collected at minimum cost; levied at the right time
* Two types of Value — Value in Use (utility of it) and Value of exchange (purchase other goods)
* Water-diamond paradox: High Value in Use is Low Value in Exchange
* Value of exchange: determined by ‘cost of production’
* Primitive Economy: Labor Cost Theory — Value is determined by labor and productivity
* Advanced Economy: Capital developed — Not only Cost of Labor, also: Pro t, Wage, Rent
* Natural Price: exactly enough revenue to pay these natural wages, rent and pro t (minimum in
the Long run, below this, they stop producing)
* Market Price: actual price — supply and demand
fl
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