Session VI: Guest Lecture Lindenberg (1)
About economic development and theories concerning economic development
Starts with explaining the OMOP model:
1. Market
2. State
3. World of organizations
4. Primary social order (world of the informal interactions
First theory that has been relevant for explaining economic development touches upon all
four Theory of value change
- There is a change in value from particularism to universalism meaning that values
we have as a group have developed in such a way that they have become more
universal (e.g. freedom; freedom of speech; freedom of movement, etc.)
- Another change in values is from the traditional family values to the values of modern
core family
o Traditionally, you have an extended family with several duties and an implied
hierarchy, etc.
o Modern core families focus on the core (mother father and kids, i.e. not the
uncle) and are driven by affection
o Change in values from ‘ascribed values’ to ‘achieved values’. Instead of being
determined what you are, you can now achieve what you are (or want to be)
- More traditionalist values restrain economic development, modern values achieve
economic development
Hence, this theory of value change is not very influential anymore to explain economic
development; however it explains the different values we have and how this influences
development.
Adam Smith (lived in the 18th century)
- Book: The Wealth of Nations (1776) and Theory of Moral Sentiments
- Developed a theory of development in four stages:
o Hunters and gatherers
More experienced gain status (i.e. the older ones). Society is here
hierarchical and relatively flat (you can not be born into a rich family;
you have to hunt and gather; no accumulation of wealth).
The possibility for growth is determined (or limited) by day to day life
1
, o Nomads (herding)
Wealth can now be accumulated
You can be born into a family that already has a lot
For Smith, this marked the beginning of a state beginning of the
accumulation of land (wealth) and thereby also protection of property
Very unequal society people can not use their wealth for anything
else then for power over people, i.e. you can hire anyone to work for
you/to do anything you want
o Agriculture
Another human invention; next to domestication of animals, humans
start to domesticate plants
Again, great inequality of wealth in that society there will be more
institutions involving to deal with these inequalities
However, it also gives room to focus on other things and develop
different skills
Economic development is still restrained by the fact that production is
focused on satisfying ones one needs
o Commerce (the market)
Main idea: you produce for exchange; not just for your own needs
this changes the whole game
If there is a voluntary exchange; there is only a win-win situation
People should be able to enter the market freely
Prices should be informative prices should be such that if the price
goes up, I should produce more (and vise versa); for consumers, if the
prices go up, they will buy less (and vise versa)
The larger the market, the more win-win transactions we have and the
more wealth accumulation
However, we also need to look how the goods are being produced
The more efficiently they are produced, the cheaper they are
produced, the more people can buy the product
Via division of labor, you will produce more efficiently and have
a greater productivity
Modern economics have a now more explicit theory how people function in markets:
1. People are sensitive to relative prices; they are quite keen to get more for the same
price; people prefer more for less
2
About economic development and theories concerning economic development
Starts with explaining the OMOP model:
1. Market
2. State
3. World of organizations
4. Primary social order (world of the informal interactions
First theory that has been relevant for explaining economic development touches upon all
four Theory of value change
- There is a change in value from particularism to universalism meaning that values
we have as a group have developed in such a way that they have become more
universal (e.g. freedom; freedom of speech; freedom of movement, etc.)
- Another change in values is from the traditional family values to the values of modern
core family
o Traditionally, you have an extended family with several duties and an implied
hierarchy, etc.
o Modern core families focus on the core (mother father and kids, i.e. not the
uncle) and are driven by affection
o Change in values from ‘ascribed values’ to ‘achieved values’. Instead of being
determined what you are, you can now achieve what you are (or want to be)
- More traditionalist values restrain economic development, modern values achieve
economic development
Hence, this theory of value change is not very influential anymore to explain economic
development; however it explains the different values we have and how this influences
development.
Adam Smith (lived in the 18th century)
- Book: The Wealth of Nations (1776) and Theory of Moral Sentiments
- Developed a theory of development in four stages:
o Hunters and gatherers
More experienced gain status (i.e. the older ones). Society is here
hierarchical and relatively flat (you can not be born into a rich family;
you have to hunt and gather; no accumulation of wealth).
The possibility for growth is determined (or limited) by day to day life
1
, o Nomads (herding)
Wealth can now be accumulated
You can be born into a family that already has a lot
For Smith, this marked the beginning of a state beginning of the
accumulation of land (wealth) and thereby also protection of property
Very unequal society people can not use their wealth for anything
else then for power over people, i.e. you can hire anyone to work for
you/to do anything you want
o Agriculture
Another human invention; next to domestication of animals, humans
start to domesticate plants
Again, great inequality of wealth in that society there will be more
institutions involving to deal with these inequalities
However, it also gives room to focus on other things and develop
different skills
Economic development is still restrained by the fact that production is
focused on satisfying ones one needs
o Commerce (the market)
Main idea: you produce for exchange; not just for your own needs
this changes the whole game
If there is a voluntary exchange; there is only a win-win situation
People should be able to enter the market freely
Prices should be informative prices should be such that if the price
goes up, I should produce more (and vise versa); for consumers, if the
prices go up, they will buy less (and vise versa)
The larger the market, the more win-win transactions we have and the
more wealth accumulation
However, we also need to look how the goods are being produced
The more efficiently they are produced, the cheaper they are
produced, the more people can buy the product
Via division of labor, you will produce more efficiently and have
a greater productivity
Modern economics have a now more explicit theory how people function in markets:
1. People are sensitive to relative prices; they are quite keen to get more for the same
price; people prefer more for less
2
