History of economic thought
1. Following Sir William Petty (1662), David Ricardo (1815) developed a theory of profit based on the uniqueness of agricultural production (the corn sector). Briefly describe this theory.
What are the strengths and weaknesses of Ricardo’s theory of profit vis-à-vis that of Adam Smith?
What role did the rate of profit on the marginal land (at the extensive margin of cultivation) play in Ricardo’s explanation of differential rent?
How was this theory of profit used to make predictions on the possible course of the capitalist economies and what was Ricardo’s logical flaw in the argument? Discuss.
2. David Ricardo and Karl Marx adopted a labor theory value. Despite their general acceptance of this theory, both recognized that natural prices or “prices of production” would normally be proportional to their underlying labor values.
Describe their specific variants of the labor theory of value.
Carefully discuss how Marx developed a technique that could systematically transform labor values into prices of production.
In what sense can it be said that there exists a “transformation problem” in the method proposed by Marx?
3. Discuss the main issues surrounding the controversy between the Currency and Banking Schools.
In contrast to David Ricardo, Robert Torrens, Lord Overstone and other Currency theorists, advocates of the Banking Principle, such as Thomas Tooke, John Fullarton, and J-S Mill, argued that the amount of money in circulation was primarily the effect of changes in economic activity. This unorthodox view rested upon the acceptance of Adam Smith’s “Real Bills” doctrine and Thomas Tooke’s “Law of Reflux”
Explain what these doctrines were and how Tooke’s Law of reflux theoretically denied the essentially metalist view of the Currency School
4. Discuss Marx’s scheme of “simple reproduction”. In what sense is this scheme a “circuit” or “circular” in nature?
What is “expanded reproduction”
What role does capitalist consumption play in these schemes? You may discuss this either directly within the context of his circuit of money-capital.
5. Throughout the period of classical economics there was a strong belief in an inherent tendency for the rate of profit to fail in capitalist economies. Adam Smith, David Ricardo and Karl Marx are three such authors who espoused such widely-held belief.
Discuss how any two of there authors sought to explain this apparent tendency.
Since the trend rate in the rate of profit throughout the 19th was not downwards, what were the logical flaws in each of their arguments.
6. The “first generation” marginalists of the early 1870s, such as William Stanley Jevons and Leon Walras, developed theories of value within the framework of a pure exchange economy. What was their theory and what role did “marginal utility” play?
How did these early theorists such as Carl Menger, as well as second-generation marginalists attempt to integrate production and distribution into their models? What difficulty did they encounter in providing a viable theory of production and distribution of income? Explain.
7. Marshall had intended to complete and generalize the classical writings, especially of John Stuart Mill’s exposition of Ricardo’s theory of value and distribution, thereby giving rise to the neoclassical school.
In what way can it be said that Marshall’s analysis of supply resembled more closely the classical views?
In what way can it be said that Marshall’s analysis of demand was mostly inspired from the first generation margnalists?
8. Briefly describe the two major strands of the quantity theory as they emerged at the turn of the 20th, generally referred to as the Fisherian and Cambridge version of the quantity theory.
In his analysis of a “pure credit” economy, Wicksell (1898) swept aside the underlying causality subsumed by the orthodox quantity theorists and elaborated theory endogenous money along the lines first put forth by Thomas Tooke and the other 19th advocates of the Banking School.
Discuss this Wicksellian framework and describe Wicksell’s “two interest rates” theory of aggregate price formation.
9. Following the Austrian tradition in economics and Wicksellian monetary theory, a number of writers during the interwar years, before the publication of the General Theory, developed theories of the business cycle that had focused on the time structure of production.
Explain how any one write (either F.A. von Hayek of Prices and Production (1931) or J.M. Keynes of the Treatise on Money (1930)) developed a theory of the business cycle.
Why was their focus primarily on price fluctuations and not on output adjustment?
10. In his preface to his General Theory (1936), Keynes explained that: “this book…has evolved into what is primarily a study of the forces which determine changes in the scale of output and employment as a whole…”
Briefly explain in what was his theoretical framework permitted a determination of the level of aggregate output and employment.
How important was the concept of “effective demand” in his analysis?
Why did he believe that the position of the “classical” economists was merely a special case of his more “general” theory? Discuss
11. Adam Smith, Thomas Malthus, and Karl Marx, all held the view that there was a general long-run tendency for wages to remain at their subsistence level.
Carefully explain at least two of these theoretical explanations.
Since real wages did rise eventually by the late nineteenth century (even though they have actually stagnated again since the 1970s), what was missing in each of these two theories that may have not been considered in the original analysis?
12. Discuss the main issues surrounding the debate between the Currency and the Banking Schools.
Among other things, the advocates of the Banking Principle argued that the amount of money in circulation was primarily the effect of changes in economic activity and not the cause. This view rested upon the acceptance of the ‘Real Bills’ doctrine and the ‘Law of Reflux’. Explain these two doctrines/laws and how they were used against the metalist perspective of the Currency School.
13. In his discussion of the three “circuits of capital”, Marx sketched out a system that could reproduce itself annually in both physical and money terms. Yet there was one element in the total chain that was critical in explaining the growth path of the economy. Briefly present at least two of his three circuits of capital approach
Show what role ‘capitalist consumption’ plays in explaining his schemes of ‘simple’ and ‘expanded reproduction’ using both the circuits of capital approach and his two-sector macroeconomic model as developed in Vol. II of Capital.
14. Discuss the ‘equimarginal principle’ as first espoused by Jevons and Menger in the early 1870s.
Show how this was a general principle believed to be applicable to both the demand and supply (or cost) sides of the analysis.
What was special about the application of the equimarginal rule to Marshallian demand analysis? How restrictive was his assumption to the development of an operational concept of ‘consumer surplus’?
15. Orthodox neoclassical economic analysis starts by making assumptions about how people behave at any time and then focus on the economic effects of this presumed behavior. In referring to this traditional methodology, Thorstein Veblen (1919) argued that economists should abandon this highly restrictive shell and should begin to question why and how communities evolve and come to behave as they do.
Explain what Veblen meant by the above statement and show in what way his historical-anthropological approach differed from that of his neoclassical counterparts.
Veblen’s approach is particularly evident in his study of consumption behavior. What is ‘conspicuous consumption’ and how does it revolutionize the theory of consumer demand traditionally based on utilitarian analysis?
16. The most striking passage in Malthus’ Essay on Population (1803) is his comparison of arithmetic and geometric progressions. For what purpose were these progressions used?
It has been argued, however, that this discussion of these progressions was not the analytical core of his theory.
What was then the theoretical foundation of the Malthusian theory of population?
17. The views on money held by Nicholas Oresme in the fourteenth century form the basis of a tradition in monetary theory, which by the 19th Century came to be reflected in the ideas of the Currency School and eventually in the quantity theory of money.
What were the ideas of Oresme?
What were the views of the advocates of the Currency School and how could they be contrasted with those of the Banking School?
How does the late-19th and early 20th Century quantity theory evolve out of the views of the Currency School?
18. The so-called “transformation problem” in Marx pertains to how rates of profits can be equalized across sectors of the economy while trying to maintain the essence of Ricardo’s labour theory of value.
Explain how Marx can maintain his labour theory perspective while recognizing that prices would not normally be proportional to labour values.
If the tendency is for equalization of rates of profit across industries, then why does he also predict a long-run tendency for the rate of profit to fall? Explain.
19. Marx rejected Say’s Law and argued that endogenously-created economic crisis in a capitalist economy are inherent to the system.
Why and how did he explain these crises of overproduction? In your answer, please be sure first to define Say’s Law.
Some have argued that, despite his rejection, there was an implicit assumption of Say’s Law in Marx’s analysis of growth or “expanded reproduction”. Explain.
20. In his Theory of Political Economy (1871), Jevons states his theory in the following manner: “Cost of production determines supply; Supply determines final degree of utility; Final degree of utility determines value.”?
What did he mean by this statement?
How was Jevons’ utility theory able to resolve the so- called “water-diamond paradox” originally attributed to Adam Smith?