Economic challenges notes
’24-‘25
What needs to be remembered on the exam when it concerns lives and
works of the economic thinkers are marked yellow. Tip for the exam about
the lives of economic thinkers: learn the sequence of events in their
lifetime.
When Luttens explicitly mentioned that something is important to learn for
the exam, this is marked with an X. This document also provides possible
exam questions mentioned by Luttens. This document provides all the
information you need to know for the exam. Good luck!
Content
Lecture 1 02-09-2024: What are economic challenges?....................................6
What to expect from Economic challenges?...................................................................6
What is economics?........................................................................................................ 6
Where do economic challenges come from?...................................................................7
Where are the economists?............................................................................................ 7
Tradition (custom) and authority (command).................................................................7
The market system......................................................................................................... 8
Markets versus the market system.................................................................................8
The profit motive............................................................................................................ 8
Land, labour and capital................................................................................................. 9
The Economic Revolution................................................................................................ 9
Being an economist is not easy......................................................................................9
Lecture 2 04-09-2024: From Aristotle to Aquinas...........................................10
Ancient Greece: economic organization........................................................................10
Ancient Greece: the cradle of western civilization........................................................11
Ancient Greece: Xenophon (c. 427-355 B.C.)................................................................11
Ancient Greece: Xenophon in his own words................................................................12
Ancient Greece: Plato (c. 427-347 B.C.) and the Republic............................................12
Ancient Greece: Aristotle (c. 384-322 B.C.)...................................................................13
Theory of a just price.................................................................................................... 14
The accumulation of wealth.......................................................................................... 14
The Roman Empire....................................................................................................... 15
Islam............................................................................................................................. 15
The Middle Ages: Feudalism.........................................................................................15
Medieval economic thought: the Scholastics................................................................16
The Scholastics: Thomas Aquinas (c. 1225-1274)......................................................16
1
, In summary................................................................................................................... 17
Lecture 3 09-09-2024: Mercantilists, Physiocrats & Adam Smith.....................17
From the Middle Ages to the Age of Enlightenment......................................................17
Mercantilism: the birth of capitalism X..........................................................................18
Criticism on Mercantilism.............................................................................................. 19
The Physiocrats............................................................................................................. 20
Francois Quesnay (1694-1774).....................................................................................20
Tableau e
́ conomique..................................................................................................... 21
Adam Smith (1723-1790)..............................................................................22
Adam Smith, The Moral Philosopher.............................................................................22
Visiting the Physiocrats.................................................................................................23
The Wealth of Nations (1776) X....................................................................................23
The Wealth of Nations: division of labour..................................................................23
The Wealth of Nations: price theory X.......................................................................24
The Wealth of Nations: The invisible hand.................................................................25
The Wealth of Nations: role of the government.........................................................26
The Wealth of Nations: consumers first.....................................................................26
Lecture 4 11-09-2024: The Classical Economists............................................27
An Essay on the Principle of Population........................................................................28
Malthus and economic policy........................................................................................28
Ricardo’s view of society........................................................................................... 29
Ricardo: price and distribution theory X....................................................................29
Ricardo: theory of rent X........................................................................................... 30
Ricardo: economy gravitates towards a stationary state X........................................31
Jean-Baptiste Say (1967-1832).....................................................................................33
Say’s Law.................................................................................................................. 33
Jeremy Bentham (1748-1832).......................................................................................34
John Stuart Mill (1806-1873).........................................................................................34
John Stuart Mill: works............................................................................................... 35
John Stuart Mill: On distribution and value................................................................35
Lecture 5 15-09-2024: Karl Marx...................................................................36
England in the 1820’s................................................................................................... 36
The dreams of utopian socialists: Robert Owen............................................................36
The dreams of utopian socialists: Saint-Simon..............................................................37
The dreams of utopian socialists: Fourier.....................................................................37
Karl Marx (1818-1883)..................................................................................................37
Friedrich Engels (1820-1895)........................................................................................38
The Communist Manifesto (1848) X..............................................................................38
Modes of production X..................................................................................................39
The communist Manifesto (1848): Last paragraph........................................................41
Marx’ theory of alienation x..........................................................................................42
The 5 laws of capitalist motion.....................................................................................43
2
,Lecture 6 18-09-2024: The Marginalists and Alfred Marshall...........................45
The Marginalist Revolution............................................................................................45
Consequences of the Marginalist Revolution................................................................46
William Stanley Jevons (1835-1882).............................................................................46
The Coal Question (1862).............................................................................................46
Theory of Political Economy (1871)...............................................................................47
Theory of Political Economy: labor allocation................................................................47
..................................................................................................................................... 47
The Solar Period and the Price of Corn (1875)..............................................................48
Carl Menger (1840-1921).............................................................................................. 48
Consumption choice..................................................................................................... 49
Utility maximization x................................................................................................... 50
On the origin of money.................................................................................................50
Leon Walras (1834-1910)..............................................................................................50
General equilibrium theory...........................................................................................51
Alfred Marshall (1842-1924)......................................................................................... 52
Life............................................................................................................................ 52
Method...................................................................................................................... 52
Approach................................................................................................................... 53
Price theory............................................................................................................... 53
Consumer and producer surplus................................................................................53
Why markets fail and the role of government...............................................................54
Marshall’s importance............................................................................................... 55
Lecture 7 25-09-2024: The Old and New Institutional School..........................55
What are institutions?................................................................................................... 55
Institutional economics vs. Neo-Classical economics....................................................56
Two different Institutional Schools: old and new...........................................................56
Thorstein Bunde Veblen (1857-1929)...........................................................................56
The Theory of the Leisure Class (1899).........................................................................57
Veblen versus Marshall.................................................................................................57
The Theory of Business Enterprise................................................................................57
Gary Becker (1930-2014)..............................................................................................57
Life............................................................................................................................ 57
Work.......................................................................................................................... 58
Marriage, children, divorce........................................................................................58
Crime and punishment................................................................................................. 58
Addiction....................................................................................................................... 58
Lecture 8 23-09-2024: The Great Depression and John Maynard Keynes..........59
The Roaring twenties.................................................................................................... 59
The Big Crash............................................................................................................... 59
The Great Depression 1929-1939.................................................................................59
John Maynard Keynes (1883-1946)...............................................................................60
3
, Interests........................................................................................................................ 61
Keynes on investments................................................................................................. 62
Assumption Classical School.........................................................................................62
Keynes’ Attack.............................................................................................................. 63
Keynes’ model.............................................................................................................. 63
Keynes’ solution............................................................................................................ 64
On balanced budgets.................................................................................................... 65
Keynes’ legacy.............................................................................................................. 65
Economic challenge: government debts.......................................................................66
Lecture 9 30-09-2024: Hy Fisher and Joseph A. Schumpeter...........................70
The role of money in the economy...............................................................................70
Life............................................................................................................................ 70
Stocks versus flows....................................................................................................... 71
The quantity theory of money X...................................................................................71
The Cantillon effect....................................................................................................... 73
Money Illusion............................................................................................................... 73
Debt deflation............................................................................................................... 74
Fisher’s place in history................................................................................................ 74
Joseph Schumpeter (1883-1950)..................................................................................75
Business Cycles (1939).................................................................................................75
Capitalism, Socialism and Democracy (1942)...............................................................76
Economic challenge: robotization.................................................................................77
Lecture 10 02-10-2024: From the Second World War and the Great System
Debate to the Cold War and the Development of Game Theory.......................78
Introduction.................................................................................................................. 78
Ludwig von Mises (1881-1973).....................................................................................78
Contributions............................................................................................................. 79
Oskar Lange (1904-1965).............................................................................................79
Friedrich von Hayek (1899-1992)..................................................................................80
Hayek in his own words............................................................................................. 81
The Great Systems Debate...........................................................................................81
Austrian Business Cycle theory.....................................................................................82
The Road to Serfdom (1944)......................................................................................... 82
The Constitution of Liberty (1960)................................................................................82
John von Neumann (1903-1957)...................................................................................83
RAND Corporation......................................................................................................... 83
John Forbes Nash, Jr. (1928-2015).................................................................................85
The Prisoners’ dilemma................................................................................................ 85
Criticism on game theory..............................................................................................85
Economic challenges.................................................................................................... 86
4
,Lecture 11 07-10-2024: The Birth of Econometrics and Experimental Economics
................................................................................................................... 86
Introduction.................................................................................................................. 86
Econometric analysis.................................................................................................... 87
Nobel Prize in Economics.............................................................................................. 87
Ragnar Frisch (1895-1973)...........................................................................................87
Jan Tinbergen (1903-1994)...........................................................................................88
Introduction.................................................................................................................. 89
Experimental Economics............................................................................................... 89
Herbert Simon (1916-2001).......................................................................................... 90
Daniel Kahneman (1934-) & Amos Tversky (1937-1996)..............................................91
Behavioral Economics................................................................................................... 91
An experiment.............................................................................................................. 92
Reflection effect........................................................................................................... 92
Another experiment...................................................................................................... 93
Mental accounting........................................................................................................ 93
Loss aversion................................................................................................................ 93
Economic challenge: Big Data, Internet of Things.........................................................93
Lecture 12 08-10-2024: The end of economics...............................................94
Capita Selecta............................................................................................................... 94
Joan Robinson (1903-1983)........................................................................................... 94
Milton Friedman (1912-2006).......................................................................................95
Paul Samuelson (1915-2009)........................................................................................95
Kenneth Arrow (1921-2017).......................................................................................... 95
Amartya Sen (1933-).................................................................................................... 96
Elinor Ostrom (1933-2012)........................................................................................... 96
Joseph Stiglitz (1943-)................................................................................................... 97
Paul Krugman (1953-)................................................................................................... 97
Thomas Piketty (1971-)................................................................................................. 97
Esther Duflo (1972-)..................................................................................................... 98
The end of economics................................................................................................... 98
What is economics ultimately about?...........................................................................98
Will economists ever agree with each other?................................................................99
Could economics ever be a natural science?..............................................................100
Is the capitalist system the winner in the end?...........................................................100
5
, Lecture 1 02-09-2024: What are economic
challenges?
What to expect from Economic challenges?
In this course: deep analysis of capitalism and communism by meeting the
great minds and identifying different paradigms and schools of thought. In
economics there is much more debate about what is true: not one simple
truth. You cannot see the thinker separated from the social, political,
economic context. Economics is continuously evolving. Link insides from
the past to the problems that we have today. I.e. Challenges for the
markets: not in line with the morals that we have, sometimes they have
outcomes that are perceived as bad; market on the one hand and morality
on the other hand. Also, sustainability. The government also has many
challenges: fighting inflation, unemployment, collect taxes, national debt
restructuring, stability of the currency etc. Next to that: the environment,
natural challenges. Think about Covid-19 which hit the system. Next,
geopolitical challenges, such as Gaza, protectionism, nuclear threat.
Lastly, technology: big data, robotization (AI).
What is economics?
“Economics is the science which studies human behavior as a relationship
between given ends and scarce means which have alternative uses “-
Lionel Robbins
Government: ends: collect certain amount of taxes. We all have
different ends and goals. Crucial word: scarcity: there is no
abundance of it, so there is a limit to resources. A limit of labor you
can put in a day. Opportunity cost: the cost of what I am not doing.
No economics without scarcity.
“Economics is the study of mankind in the ordinary business of life” -
Alfred Marshall
Marshall is the inventor of the most famous graph in economics:
supply and demand. 1890. Each of us have many lives: family,
social, sport etc. But we are also all having an economic live. I need
to sustain my family, earn money, and spend it in the market for
necessity and luxury. Economics is for studying that aspect of live.
“Economics is the art of making the most of life” – George Bernard Shaw
How can you make sense of that? Seeing it as one big string of
choices that we make. You decide what to eat etc.
Economics is the science of choice: more rationality: going for the
best.
Economics studies how people use scarce factors of production
(land, labour, capital) to produce various commodities and how
these commodities are distributed amongst the members of
society for consumption.
6
’24-‘25
What needs to be remembered on the exam when it concerns lives and
works of the economic thinkers are marked yellow. Tip for the exam about
the lives of economic thinkers: learn the sequence of events in their
lifetime.
When Luttens explicitly mentioned that something is important to learn for
the exam, this is marked with an X. This document also provides possible
exam questions mentioned by Luttens. This document provides all the
information you need to know for the exam. Good luck!
Content
Lecture 1 02-09-2024: What are economic challenges?....................................6
What to expect from Economic challenges?...................................................................6
What is economics?........................................................................................................ 6
Where do economic challenges come from?...................................................................7
Where are the economists?............................................................................................ 7
Tradition (custom) and authority (command).................................................................7
The market system......................................................................................................... 8
Markets versus the market system.................................................................................8
The profit motive............................................................................................................ 8
Land, labour and capital................................................................................................. 9
The Economic Revolution................................................................................................ 9
Being an economist is not easy......................................................................................9
Lecture 2 04-09-2024: From Aristotle to Aquinas...........................................10
Ancient Greece: economic organization........................................................................10
Ancient Greece: the cradle of western civilization........................................................11
Ancient Greece: Xenophon (c. 427-355 B.C.)................................................................11
Ancient Greece: Xenophon in his own words................................................................12
Ancient Greece: Plato (c. 427-347 B.C.) and the Republic............................................12
Ancient Greece: Aristotle (c. 384-322 B.C.)...................................................................13
Theory of a just price.................................................................................................... 14
The accumulation of wealth.......................................................................................... 14
The Roman Empire....................................................................................................... 15
Islam............................................................................................................................. 15
The Middle Ages: Feudalism.........................................................................................15
Medieval economic thought: the Scholastics................................................................16
The Scholastics: Thomas Aquinas (c. 1225-1274)......................................................16
1
, In summary................................................................................................................... 17
Lecture 3 09-09-2024: Mercantilists, Physiocrats & Adam Smith.....................17
From the Middle Ages to the Age of Enlightenment......................................................17
Mercantilism: the birth of capitalism X..........................................................................18
Criticism on Mercantilism.............................................................................................. 19
The Physiocrats............................................................................................................. 20
Francois Quesnay (1694-1774).....................................................................................20
Tableau e
́ conomique..................................................................................................... 21
Adam Smith (1723-1790)..............................................................................22
Adam Smith, The Moral Philosopher.............................................................................22
Visiting the Physiocrats.................................................................................................23
The Wealth of Nations (1776) X....................................................................................23
The Wealth of Nations: division of labour..................................................................23
The Wealth of Nations: price theory X.......................................................................24
The Wealth of Nations: The invisible hand.................................................................25
The Wealth of Nations: role of the government.........................................................26
The Wealth of Nations: consumers first.....................................................................26
Lecture 4 11-09-2024: The Classical Economists............................................27
An Essay on the Principle of Population........................................................................28
Malthus and economic policy........................................................................................28
Ricardo’s view of society........................................................................................... 29
Ricardo: price and distribution theory X....................................................................29
Ricardo: theory of rent X........................................................................................... 30
Ricardo: economy gravitates towards a stationary state X........................................31
Jean-Baptiste Say (1967-1832).....................................................................................33
Say’s Law.................................................................................................................. 33
Jeremy Bentham (1748-1832).......................................................................................34
John Stuart Mill (1806-1873).........................................................................................34
John Stuart Mill: works............................................................................................... 35
John Stuart Mill: On distribution and value................................................................35
Lecture 5 15-09-2024: Karl Marx...................................................................36
England in the 1820’s................................................................................................... 36
The dreams of utopian socialists: Robert Owen............................................................36
The dreams of utopian socialists: Saint-Simon..............................................................37
The dreams of utopian socialists: Fourier.....................................................................37
Karl Marx (1818-1883)..................................................................................................37
Friedrich Engels (1820-1895)........................................................................................38
The Communist Manifesto (1848) X..............................................................................38
Modes of production X..................................................................................................39
The communist Manifesto (1848): Last paragraph........................................................41
Marx’ theory of alienation x..........................................................................................42
The 5 laws of capitalist motion.....................................................................................43
2
,Lecture 6 18-09-2024: The Marginalists and Alfred Marshall...........................45
The Marginalist Revolution............................................................................................45
Consequences of the Marginalist Revolution................................................................46
William Stanley Jevons (1835-1882).............................................................................46
The Coal Question (1862).............................................................................................46
Theory of Political Economy (1871)...............................................................................47
Theory of Political Economy: labor allocation................................................................47
..................................................................................................................................... 47
The Solar Period and the Price of Corn (1875)..............................................................48
Carl Menger (1840-1921).............................................................................................. 48
Consumption choice..................................................................................................... 49
Utility maximization x................................................................................................... 50
On the origin of money.................................................................................................50
Leon Walras (1834-1910)..............................................................................................50
General equilibrium theory...........................................................................................51
Alfred Marshall (1842-1924)......................................................................................... 52
Life............................................................................................................................ 52
Method...................................................................................................................... 52
Approach................................................................................................................... 53
Price theory............................................................................................................... 53
Consumer and producer surplus................................................................................53
Why markets fail and the role of government...............................................................54
Marshall’s importance............................................................................................... 55
Lecture 7 25-09-2024: The Old and New Institutional School..........................55
What are institutions?................................................................................................... 55
Institutional economics vs. Neo-Classical economics....................................................56
Two different Institutional Schools: old and new...........................................................56
Thorstein Bunde Veblen (1857-1929)...........................................................................56
The Theory of the Leisure Class (1899).........................................................................57
Veblen versus Marshall.................................................................................................57
The Theory of Business Enterprise................................................................................57
Gary Becker (1930-2014)..............................................................................................57
Life............................................................................................................................ 57
Work.......................................................................................................................... 58
Marriage, children, divorce........................................................................................58
Crime and punishment................................................................................................. 58
Addiction....................................................................................................................... 58
Lecture 8 23-09-2024: The Great Depression and John Maynard Keynes..........59
The Roaring twenties.................................................................................................... 59
The Big Crash............................................................................................................... 59
The Great Depression 1929-1939.................................................................................59
John Maynard Keynes (1883-1946)...............................................................................60
3
, Interests........................................................................................................................ 61
Keynes on investments................................................................................................. 62
Assumption Classical School.........................................................................................62
Keynes’ Attack.............................................................................................................. 63
Keynes’ model.............................................................................................................. 63
Keynes’ solution............................................................................................................ 64
On balanced budgets.................................................................................................... 65
Keynes’ legacy.............................................................................................................. 65
Economic challenge: government debts.......................................................................66
Lecture 9 30-09-2024: Hy Fisher and Joseph A. Schumpeter...........................70
The role of money in the economy...............................................................................70
Life............................................................................................................................ 70
Stocks versus flows....................................................................................................... 71
The quantity theory of money X...................................................................................71
The Cantillon effect....................................................................................................... 73
Money Illusion............................................................................................................... 73
Debt deflation............................................................................................................... 74
Fisher’s place in history................................................................................................ 74
Joseph Schumpeter (1883-1950)..................................................................................75
Business Cycles (1939).................................................................................................75
Capitalism, Socialism and Democracy (1942)...............................................................76
Economic challenge: robotization.................................................................................77
Lecture 10 02-10-2024: From the Second World War and the Great System
Debate to the Cold War and the Development of Game Theory.......................78
Introduction.................................................................................................................. 78
Ludwig von Mises (1881-1973).....................................................................................78
Contributions............................................................................................................. 79
Oskar Lange (1904-1965).............................................................................................79
Friedrich von Hayek (1899-1992)..................................................................................80
Hayek in his own words............................................................................................. 81
The Great Systems Debate...........................................................................................81
Austrian Business Cycle theory.....................................................................................82
The Road to Serfdom (1944)......................................................................................... 82
The Constitution of Liberty (1960)................................................................................82
John von Neumann (1903-1957)...................................................................................83
RAND Corporation......................................................................................................... 83
John Forbes Nash, Jr. (1928-2015).................................................................................85
The Prisoners’ dilemma................................................................................................ 85
Criticism on game theory..............................................................................................85
Economic challenges.................................................................................................... 86
4
,Lecture 11 07-10-2024: The Birth of Econometrics and Experimental Economics
................................................................................................................... 86
Introduction.................................................................................................................. 86
Econometric analysis.................................................................................................... 87
Nobel Prize in Economics.............................................................................................. 87
Ragnar Frisch (1895-1973)...........................................................................................87
Jan Tinbergen (1903-1994)...........................................................................................88
Introduction.................................................................................................................. 89
Experimental Economics............................................................................................... 89
Herbert Simon (1916-2001).......................................................................................... 90
Daniel Kahneman (1934-) & Amos Tversky (1937-1996)..............................................91
Behavioral Economics................................................................................................... 91
An experiment.............................................................................................................. 92
Reflection effect........................................................................................................... 92
Another experiment...................................................................................................... 93
Mental accounting........................................................................................................ 93
Loss aversion................................................................................................................ 93
Economic challenge: Big Data, Internet of Things.........................................................93
Lecture 12 08-10-2024: The end of economics...............................................94
Capita Selecta............................................................................................................... 94
Joan Robinson (1903-1983)........................................................................................... 94
Milton Friedman (1912-2006).......................................................................................95
Paul Samuelson (1915-2009)........................................................................................95
Kenneth Arrow (1921-2017).......................................................................................... 95
Amartya Sen (1933-).................................................................................................... 96
Elinor Ostrom (1933-2012)........................................................................................... 96
Joseph Stiglitz (1943-)................................................................................................... 97
Paul Krugman (1953-)................................................................................................... 97
Thomas Piketty (1971-)................................................................................................. 97
Esther Duflo (1972-)..................................................................................................... 98
The end of economics................................................................................................... 98
What is economics ultimately about?...........................................................................98
Will economists ever agree with each other?................................................................99
Could economics ever be a natural science?..............................................................100
Is the capitalist system the winner in the end?...........................................................100
5
, Lecture 1 02-09-2024: What are economic
challenges?
What to expect from Economic challenges?
In this course: deep analysis of capitalism and communism by meeting the
great minds and identifying different paradigms and schools of thought. In
economics there is much more debate about what is true: not one simple
truth. You cannot see the thinker separated from the social, political,
economic context. Economics is continuously evolving. Link insides from
the past to the problems that we have today. I.e. Challenges for the
markets: not in line with the morals that we have, sometimes they have
outcomes that are perceived as bad; market on the one hand and morality
on the other hand. Also, sustainability. The government also has many
challenges: fighting inflation, unemployment, collect taxes, national debt
restructuring, stability of the currency etc. Next to that: the environment,
natural challenges. Think about Covid-19 which hit the system. Next,
geopolitical challenges, such as Gaza, protectionism, nuclear threat.
Lastly, technology: big data, robotization (AI).
What is economics?
“Economics is the science which studies human behavior as a relationship
between given ends and scarce means which have alternative uses “-
Lionel Robbins
Government: ends: collect certain amount of taxes. We all have
different ends and goals. Crucial word: scarcity: there is no
abundance of it, so there is a limit to resources. A limit of labor you
can put in a day. Opportunity cost: the cost of what I am not doing.
No economics without scarcity.
“Economics is the study of mankind in the ordinary business of life” -
Alfred Marshall
Marshall is the inventor of the most famous graph in economics:
supply and demand. 1890. Each of us have many lives: family,
social, sport etc. But we are also all having an economic live. I need
to sustain my family, earn money, and spend it in the market for
necessity and luxury. Economics is for studying that aspect of live.
“Economics is the art of making the most of life” – George Bernard Shaw
How can you make sense of that? Seeing it as one big string of
choices that we make. You decide what to eat etc.
Economics is the science of choice: more rationality: going for the
best.
Economics studies how people use scarce factors of production
(land, labour, capital) to produce various commodities and how
these commodities are distributed amongst the members of
society for consumption.
6
