TERM 3 2023
ECON0008 HISTORY OF ECONOMIC THOUGHT
TERM 3 COURSEWORK
RELEASE DATE: Friday 26 April 2024 12 p.m.
DEADLINE FOR SUBMISSION: 10 May 2024 12 p.m.
Answer the following question:
“The laws of the aggregate depend of course upon the laws applying to individual cases…”
Jevons, William Stanley, The Theory of Political Economy, 1871.
Outline some of the discussions and debates on this question that have taken place among
some prominent writers on economic issues from early modern times (or earlier if you wish)
up to economic debates of today.
You should show that you are aware of discussions of this question in the writings of Adam
Smith, Ricardo, Jevons and Keynes, and you are encouraged to quote extensively from the
writings of authors such as these.
You should show that you are aware of how such writers addressed this question in their
discussions of major economic issues such as international trade, mechanisation and
unemployment.
You should show how discussion of this question has been central to the history of economic
methodology from Jevons to Keynes, and how it relates to the emergence of different
branches of the discipline of economics.
You must give adequate references for each citation; you may use any reference system you
choose (e.g. Harvard, etc.), so long as you use it consistently and comprehensively.
You do not need to give page references in the case of major works of the above-mentioned
authors; a title reference will be adequate in such cases.
You may give abbreviated references in the case of sources referred to more than once in
your answer.
The proportion of your text consisting of direct quotations should be quite high – a third is
perfectly acceptable, but the proportion should not be more than a half.
In cases where your quotes are more than around 40 words, it is recommended that you
format them as separate indented paragraphs.
Your answer should not be longer than 2000 words. This includes citations in parenthesis but
not your reference list.
, Introduction
The discussion on how the law of aggregate depends on the law applying to individuals are different
across various schools of thought. Jevons’ quote is posing the issue of how macroeconomic principles
and outcomes can be derived from the behaviour and principles that govern individuals. This essay
investigates how prominent economic thinkers from Adam Smith to John Maynard Keynes have
debated on Jevons’ belief of developing individual law into aggregate economic principles. The
classical economists like Smith and Ricardo believe that state can be analysed the same way as
individuals. Smith believes that “What is prudence in the conduct of every private family can be
scarce folly in that of a great kingdom”. (Smith, Wealth of Nations) This suggests that if something is
right for a household to do, then it is most likely to be reasonable for a nation. However, Keynes has a
stark perspective and he challenges the classicals theories. Keynes believed that this is a ‘fallacy of
composition’, stating that what is true for the individual is not necessarily true for the whole.
Therefore, a different approach of analysing the state is required due to classical theories only
applicable to special cases.
Smith perspective
In Smith’s Wealth of Nations, he focuses on division of labour which increases ‘productive powers of
labour’. This is due to the increased dexterity of labourers, saves time passing from one type of work
to another and stimulates invention of labour saving devices. It still reflects the age of manufacture
that leads to mechanisation. Overall, increase in individual efficiency increases aggregate efficiency.
"But though they were very poor, and therefore but indifferently accommodated with the
necessary machinery, they could, when they exerted themselves, make among them about
twelve pounds of pins in a day...Those ten persons, therefore, could make among them
upwards of forty-eight thousand pins in a day." (Smith, WN)
In his pin factory example, it shows the individual efficiencies gained through specialisation and
division of labour increase the total output. Hence, showing how individual actions can drive
aggregate outcomes. However, Smith acknowledges that the extent of division of labour is limited by
the extent of the market.
"As it is the power of exchanging that gives occasion to the division of labour, so the extent of
this division must always be limited by the extent of that power or, in other words, by the
extent of the market." (Smith, WN)
Therefore, the extent of division of labour can only increase with the extent of the market. It may be
problematic to interpret individual outcomes with state outcomes since its scalability of individual
actions to state level outcomes is not always straightforward. Hence, the existence of international
trade plays an important role in increasing the extent of the market to lead to greater aggregate
outcomes, allowing to interpret division of labour to a larger scale. This is further enhanced by
Ricardo's theory of comparative advantage in which individual nations specialise in goods they are
best at producing.
In addition, his belief that self-interested individuals pursuing their own economic interest leads to
socially optimal outcomes: "He generally, indeed, neither intends to promote the public interest, nor
knows how much he is promoting it... he is led by an invisible hand to promote an end which was no
part of his intention." (Smith, WN). When an individual seeks to maximise its welfare, it
ECON0008 HISTORY OF ECONOMIC THOUGHT
TERM 3 COURSEWORK
RELEASE DATE: Friday 26 April 2024 12 p.m.
DEADLINE FOR SUBMISSION: 10 May 2024 12 p.m.
Answer the following question:
“The laws of the aggregate depend of course upon the laws applying to individual cases…”
Jevons, William Stanley, The Theory of Political Economy, 1871.
Outline some of the discussions and debates on this question that have taken place among
some prominent writers on economic issues from early modern times (or earlier if you wish)
up to economic debates of today.
You should show that you are aware of discussions of this question in the writings of Adam
Smith, Ricardo, Jevons and Keynes, and you are encouraged to quote extensively from the
writings of authors such as these.
You should show that you are aware of how such writers addressed this question in their
discussions of major economic issues such as international trade, mechanisation and
unemployment.
You should show how discussion of this question has been central to the history of economic
methodology from Jevons to Keynes, and how it relates to the emergence of different
branches of the discipline of economics.
You must give adequate references for each citation; you may use any reference system you
choose (e.g. Harvard, etc.), so long as you use it consistently and comprehensively.
You do not need to give page references in the case of major works of the above-mentioned
authors; a title reference will be adequate in such cases.
You may give abbreviated references in the case of sources referred to more than once in
your answer.
The proportion of your text consisting of direct quotations should be quite high – a third is
perfectly acceptable, but the proportion should not be more than a half.
In cases where your quotes are more than around 40 words, it is recommended that you
format them as separate indented paragraphs.
Your answer should not be longer than 2000 words. This includes citations in parenthesis but
not your reference list.
, Introduction
The discussion on how the law of aggregate depends on the law applying to individuals are different
across various schools of thought. Jevons’ quote is posing the issue of how macroeconomic principles
and outcomes can be derived from the behaviour and principles that govern individuals. This essay
investigates how prominent economic thinkers from Adam Smith to John Maynard Keynes have
debated on Jevons’ belief of developing individual law into aggregate economic principles. The
classical economists like Smith and Ricardo believe that state can be analysed the same way as
individuals. Smith believes that “What is prudence in the conduct of every private family can be
scarce folly in that of a great kingdom”. (Smith, Wealth of Nations) This suggests that if something is
right for a household to do, then it is most likely to be reasonable for a nation. However, Keynes has a
stark perspective and he challenges the classicals theories. Keynes believed that this is a ‘fallacy of
composition’, stating that what is true for the individual is not necessarily true for the whole.
Therefore, a different approach of analysing the state is required due to classical theories only
applicable to special cases.
Smith perspective
In Smith’s Wealth of Nations, he focuses on division of labour which increases ‘productive powers of
labour’. This is due to the increased dexterity of labourers, saves time passing from one type of work
to another and stimulates invention of labour saving devices. It still reflects the age of manufacture
that leads to mechanisation. Overall, increase in individual efficiency increases aggregate efficiency.
"But though they were very poor, and therefore but indifferently accommodated with the
necessary machinery, they could, when they exerted themselves, make among them about
twelve pounds of pins in a day...Those ten persons, therefore, could make among them
upwards of forty-eight thousand pins in a day." (Smith, WN)
In his pin factory example, it shows the individual efficiencies gained through specialisation and
division of labour increase the total output. Hence, showing how individual actions can drive
aggregate outcomes. However, Smith acknowledges that the extent of division of labour is limited by
the extent of the market.
"As it is the power of exchanging that gives occasion to the division of labour, so the extent of
this division must always be limited by the extent of that power or, in other words, by the
extent of the market." (Smith, WN)
Therefore, the extent of division of labour can only increase with the extent of the market. It may be
problematic to interpret individual outcomes with state outcomes since its scalability of individual
actions to state level outcomes is not always straightforward. Hence, the existence of international
trade plays an important role in increasing the extent of the market to lead to greater aggregate
outcomes, allowing to interpret division of labour to a larger scale. This is further enhanced by
Ricardo's theory of comparative advantage in which individual nations specialise in goods they are
best at producing.
In addition, his belief that self-interested individuals pursuing their own economic interest leads to
socially optimal outcomes: "He generally, indeed, neither intends to promote the public interest, nor
knows how much he is promoting it... he is led by an invisible hand to promote an end which was no
part of his intention." (Smith, WN). When an individual seeks to maximise its welfare, it
