05.01: How Economists’ Ideas Affect Us – Flashcards

I think that everything involves economics, from when you go to McDonalds® and buy a Big Mac to when you go fill up your car at the gas station. I think that the allocation of goods and resources, which is what economics is focused on, is an incredibly important question, especially with the population explosion in the world today, and will be an absolute necessity to use to determine how you deal with a globalized world of nine billion people in the future.

So technically, I guess my opportunity cost of majoring in economics, the first thing that comes to mind is what else I could I be majoring in. So, maybe my second most interesting course of study would be physics, so the opportunity cost of my majoring in economics is me majoring in physics. But in a broader sense, the opportunity cost of me majoring in economics now is the employment opportunities I could find if I weren't in a university. For example, if I decided to do a construction job, or something along those lines, that is the money that I am foregoing to study economics.

So past economists influence what we study today because everyone is a foundation and builds on the people who came before them. So Smith is the first really famous economist with the study of The Wealth of Nations and the idea of a free market and individual interest. And then you go and you have people like Marx and Keynes that challenged this notion of the invisible hand and qualified it. And I think that these economists frame our discussion and debate today. And I think that where economics is today is sort of a mix between Keynes and Smith, and that is sort of the mainstream debate that we are having today in our economics department.

You can be in government as an economist for a departmental agency; you can become a lawyer, go to law school with an economics degree with the analytical skills that it provides; and you can actually even become a doctor by taking economics and taking the required courses for Pre-Med. So economics degrees really provide you with tools of analytical and logical reasoning that you can apply to a wide range of careers.

I would love to go to an economics graduate program and focus on a lot of quantative analysis and graduate with maybe a Ph.D.; and then go to work say in the White House for the National Economic Council and help advise the President on the many challenges that confront our nation. So I think that it would be kind of fun getting up there and really creating a huge impact on the world and the way we choose to distribute resources.

John Maynard Keynes was British and lived from 1883-1946. He authored several works but his most significant, especially to economics students, is his General Theory of Employment, Interest, and Money. As a supporter of Keynes' theories you are most likely to support the government borrowing money and spending tax dollars on programs that will help put people to work and keep businesses in operation. Likely, you would also support government policies that put some restrictions on banks and other businesses to prevent major swings in the economy.

Adam Smith lived from 1723-1790, was a Scottish philosopher and professor, and authored The Wealth of Nations. In his work, he argued that an economy regulated itself through the interaction of supply and demand and, therefore, was best left alone. He did not think the government should have a large active role in controlling the economy. Because of this, he believed in taxation at the minimum needed to support the operation of government, and thought the amount should be based on a person's ability to pay. He supported free trade between nations, again believing that the market forces of supply and demand would contribute to the production of high quality goods and services at reasonable prices. He believed that individuals as consumers and business owners ought to be the ones answering the basic economic questions of what to produce, how to produce, and for whom to produce.

Smith is saying that people are motivated by their own needs and wants when they do something for others. In his view, this is a natural force that shapes the economy. Smith believed that to interfere with that force, such as by creating government regulations, would disrupt nature.

Karl Marx was German, lived from 1818-1883, and authored many works. Probably the most significant for economics students is Das Kapital (Capital, in English). Marx wrote in response to the change from a primarily agrarian economy to an industrial economy. He was concerned that this change created tension between groups of people, most notably factory owners and workers. He believed this tension, made worse by the seeking of profits by company owners, would result in economic collapse. He saw the natural next step as government control of the economy to prevent wide variation in the income of people, as well as to keep the prices of goods and services balanced. He thought of personal property as theft. In his mind, the government should provide the answers to the basic economic questions of what to produce, how to produce, and for whom to produce.

Mostly farmers

More people work outside of home, especially in factories

Marx here is comparing capital to a vampire. Remember he was writing at the same time factories were growing as the mode of production. He saw capital, meaning tools and technology, as replacing the special skills of workers. Marx is saying that capitalists, or owners, see workers as just another form of capital. Their worth is in the amount of work the owner purchases, which he calls labour-power and defines in units of time. He believed that this was the only value of the worker to the owner, the amount of work, rather than as a person. This was one of his criticisms of capitalism.

John Maynard Keynes was British and lived from 1883-1946. He authored several works but his most significant, especially to economics students, is his General Theory of Employment, Interest, and Money. The way we divide the study of economics into macroeconomics and microeconomics can be traced to him. He believed in capitalism—that individuals should answer the basic economic questions of what to produce, how to produce, and for whom to produce. However, he believed that a capitalist system could be most efficient and protected from the negative consequences of major booms and busts through the government. His influence on society is most notable in the years following the Great Depression. The British and United States' governments followed his recommendations of government spending, even putting themselves in debt, in order to stimulate the economy and get it back on track. A recent example of Keynesian economics is President Obama's signing into law a large stimulus package in February 2009.

Keynes here is writing in reaction to politics after World War I. He is saying that the existing economic ideas will no longer work. Neither extreme of an economy, complete government control and little control, are acceptable now. Keynes is saying that nations need a system that prevents chaos and unlimited self-interest.