Modern Theories of Political Economy PDF

→ the most important source of revenue is from the peculiar MODERN THEORIES OF POLITICAL ECONOMY products of the country, next comes that derived from...

→ the most important source of revenue is from the peculiar MODERN THEORIES OF POLITICAL ECONOMY products of the country, next comes that derived from merchandise and customs, and lastly that which comes Political Economy is the study of value: wealth of nations → leaving from the ordinary taxes through exchange 4.​ Personal economy individual - we find wide divergences ⇢ To understand Political Economy we need to understand the past = because economy is not necessarily always practiced with classical political economy one aim in view. → the least important kind of economy because the incomes CLASSICAL POLITICAL ECONOMY and expenses are small. → the main source of revenue is the land, other kinds of ARISTOTLE property, investments of money ​ Private property ​ Private property influenced men to better themselves CICERO fall of roman empire ​ Agriculture are the entities of the society Fall because of the invasion of barbarian tribes giving way to the → it is important as it adds value medieval period or dark ages ​ Nobles are above the society → fall of its economy → they stimulates the society to have progress CATHOLIC CHURCH PLATO ​ Most important institution that time ​ Communal ownership ​ The essence of property became a challenge → to eliminate greediness and immoral → why do we want a property, when the property we really → mandated by the guardians need is in heaven? ​ Perfect society ​ Matthew Principle: begin with advantage accumulate more ​ Guardian does not have lands on their own advantage over time and those who begin with XENOPHON disadvantage become more disadvantaged over time ​ household management ST. THOMAS AQUINAS ​ Women or wife should know how to budget ​ Money usury: pagpapahiram ng pera na mas malaki ang interest aristotle (oikonomos) ​ Money should be stable, if not, it is a witch craft ​ Just Price theory: profit is bad Man should have: ​ Property → agriculture thomas mun → slaves (overseer and worker) BRITISH MERCANTILISM ​ wife ​ The identity of ensuring the economy is boosting is ensuring → children that gold and silver must flow into our own treasury. To ensure that there is a positive occurrence in our economy, Qualities of an Economist : without this economy will be Stagnant 1.​ Acquire it: property → foreign trade 2.​ Order it: give command FRENCH MERCANTILISM 3.​ Guard it: protect ​ focuses on the domestic industry and agriculture++ 4.​ Make use of it ​ Absolute power in monarchy 2 types of economist ​ feudal perspective: lands are owned by the king and queen 1.​ Attic: system of economy is also useful; for they sell their given by the produce and buy what they want AUSTRIAN MERCANTILISM 2.​ Persian: system was that everything should be organized ​ agricultural sector is more beneficial because it is useful and that the master should superintend everything agriculturally and acquiring metal personally ​ all commodities in a country that cannot be sold as it should 4 kinds of economy be worked up inside the country 1.​ royal economy (king) - absolute power to the monarchy ​ gold and silver must be kept in circulation → four special departments: coinage, exports, imports, and ​ import only raw materials to be finished at home expenditure ​ Self sufficient 2.​ Satrapic economy (provincial governor) - BALANCE OF TRADE → six kinds of revenue : from land, from the peculiar ​ ↑ export ↓ import products of the district, from merchandise, fromtaxes, cattle, and from all other sources 3.​ Political economy (city) - the most varied and the easiest  ​ occurs when population growth outpaces agricultural mandeville (grumbling hive) production, causing famine or war, resulting in poverty and PROMOTES VICES depopulation ​ Promotes self-interest WHY IS IT SCANDALOUS? ​ Bad action can affect good action CANTILLON EFFECT ​ Describes the uneven effect inflation has on goods and assets in a economy OF INTEREST BY DAVID HUME INFLATION POSITIVE EFFECT ​ high inflation → high profits → stimulates the economy TYPES OF CHECK MONEY CLIPPING 1.​ Positive: not self mandated like diseases famine and war ​ Increase of gold and silver 2.​ preventive : birth control, abortion, contraceptives, ligation ​ Decrease in value of gold and silver and vasectomy NEO-MALTHUSIAN ​ perfect society (because of capitalism) doesn’t mean stable françois quesnay (tableau économique) society PHYSIOCRACY ​ Value in agriculture WILLIAM GODWIN ​ Economics power are from agriculture and farmers ​ perfect society = utopian society ​ industrial revolution: development of science which assure 3 classes that everyone was functioning 1.​ Productive class: farmers 2.​ Proprietors: merchants 3.​ Sterile class: consume produce BRIEF INTRODUCTION TO MODERN POLITICAL ECONOMY 09.16.24 adam smith Modern theories is a war of different concepts INVISIBLE HANDS ​ Promotes self interest that leads to the prosperity of the Political Economy is considered as dismal science public good → a great example of it is the theory of Malthusian by Thomas Malthus DIVISION OF LABOR because of genetic modified organism ​ Time sufficient ​ Specialization BUT, as time goes by, Political Economy starts to rely more in science ​ BUT, it has limited extent to the market → ECONOMICS → dapat maraming gumagawa that’s why it contradicts with the Poor’s law ALFRED MARSHALL POOR’S LAW ​ Changed labels of Political Economy to Economics ​ Government ensure that the poor were housed, clothed and ​ Economics: focuses on the scientific understanding of fed society, data analysis of scare ​ The poor became dependent to the government leading ​ Political Economy: Ethical considerations in both economic them to have no progress and noneconomic value ​ Increase of population the great depression Components of price WHY CAUSES THE GREAT DEPRESSION? 1.​ Wages ​ Failure in the stock market 2.​ Profit BANK-RUN 3.​ Rent ​ when a large group of depositors withdraw their money from banks at the same time due to the fear that the institution thomas robert malthus will become insolvent MALTHUSIAN THEORY KEYNESIAN ​ When the population outgrows the resources ​ The government need to intervene to improve the quality of MALTHUSIAN CATASTROPHE the economy MULTIPLIER EFFECT ​ communism destroy social classes ​ the government triggers this phenomena by spending an ​ sense of authority is within themselves investment that boost the economy activity flowing ​ has a concept of democracy ​ spanish civil war COMMUNAL IMPLICATION IN ECONOMY ​ Everything will be on anything LIBERTARIANISM ​ Minimal government intervention ​ Go for freedom → as long as wala kang naapakan na karapatan ng ibang tao then go for it ​ Any form of this governance is wrong/ not effective POP ECONOMIST the political spectrum ​ Aym Rad ​ Moral was given for the sake of others NEOCLASSICAL ​ An individual shouldn’t be shacked by the other individual ​ defends the capitalist ​ Selfishness is a virtue ​ downplay the importance of culture to development. Economists make the simplifying assumption that human beings are rational utility-maximizing individuals, and that such maximizing behavior is largely invariant across different KARL MARX BOOKS human societies. →“hindi mo kasalanan ang mabuhay sa mundo ng a contribution to the critique of political economy mahirap, pero kasalanan mo kung mamamatay kang mahirap” PREFACE UTILITY HISTORICAL MATERIALISM ​ uses of a thing/object/goods/services that leads to ​ the economic (mode of production) base determines the satisfaction superstructure (politics and ideological systems) LAW OF DIMINISHING MARGINAL UTILITY → Changes on economic = changes in politics ​ the more that the person consumes the utility the more the MODES OR PRODUCTION satisfaction decreases ​ Society's material conditions and productive forces are central to understanding its organization → feudalism, capitalism, communism friedrich hayek CLASS STRUGGLE CLASSICAL LIBERAL PERSPECTIVE ​ history are made by the struggle between the classes ​ Defender of Laissez-faire economy ECONOMIC BASE VS SUPERSTRUCTURE → gov't intervention disrupts the smooth operation of ​ laissez-faire SOCIAL RELATION OF PRODUCTION THOUGHTS IN ECONOMIC FREEDOM ​ Economic base: material condition of the society ​ Economic freedom is the foundation of all freedom ​ Superstructure: law and politics ​ No economic freedom = political freedom → if one person doesn't have an ability to purchase anything, CHAPTER 1: THE COMMODITY they can be easily be bribe by a politician COMMODITY ​ Taxation is theft ​ Basic unit of capitalist production ​ Satisfy the human needs/wants anarchy VALUE IN USE ​ the usefulness of the commodity (qualitative) Property is a theft because the concept of property is a natural wealth VALUE IN EXCHANGE ​ ability to exchange commodity to another (quantitative) LABOR ANARCHY AND LIBERTARIANISM ​ The value of a commodity is determined by the amount of 19.09.24 socially necessary labor time required to produce it FETISHISM OF COMMODITIES ANARCHY ​ The value of goods is seen as inherent to the objects ​ property will be communally be given, and communal themselves, rather than being the result of human labor. handled Commodities take on a "mystical" quality, where their real ​ property is equally given  social origins (labor and production) are hidden by their overthrowing the bourgeoisie (capitalist class) and market value empowering the working class ROLE OF MONEY COLLECTIVE OWNERSHIP ​ Allowed commodities to be compared and traded ​ Instead of individual ownership, Communists advocate for ​ Reflects the abstraction of labor and value in the capitalist collective control over the means of production, leading to economy equitable distribution of wealth. INTERNATIONAL SOLIDARITY CHAPTER 2: MONEY OR SIMPLE CIRCULATION ​ Communism calls for a global movement, uniting workers of SIMPLE CIRCULATION: commodity > money > commodity (C-M-C) all countries to fight against the oppression of capitalism ​ commodity is sold for money, and that money is then used EDUCATION AND FAMILY to buy another commodity ​ Communism calls for a global movement, uniting workers of ​ Money is just a medium for exchange all countries to fight against the oppression of capitalism ​ Commodities are constantly exchanged through money to SOCIALIST AND COMMUNIST LITERATURE fulfill human needs. This process does not directly produce REACTIONARY SOCIALISM wealth but enables the circulation of goods within society ​ wanted to address social problems but in ways that would ​ the goal is not to accumulate wealth in the form of money preserve the old societal order or even revert to older forms of society. It is broken into three subcategories: DUAL FUNCTION OF MONEY 1.​ Feudal Socialism: used socialist ideas to criticize the 1.​ Measure of value bourgeoisie, but only as a way of defending their own 2.​ Measure of exchange outdated privileges. They often expressed concern for the poor while resisting actual democratic or revolutionary (M-C-M) money > commodity > money changes ​ money is used to generate more money (profit) 2.​ Petty-Bourgeois Socialism: This group represents the small business owners and the lower middle class. They feared losing their economic status to the large-scale capitalists and proposed reforms that would allow them to keep their the communist manifesto positions in society, but their ideas were still BOURGEOISIE VS PROLETARIANS backward-looking and incapable of addressing the broader HISTORICAL MATERIALISM social issues ​ Throughout history, societal developments have been driven 3.​ German, or "True" Socialism: This group translated French by the conflict between different social classes= Class socialist ideas into German, but in doing so, they removed Struggle the revolutionary aspects. Marx and Engels accuse them of BOURGEOISIE turning socialism into a philosophical, abstract discussion ​ Elites, capitalist class rather than a force for actual change PROLETARIAT CONSERVATIVE/BOURGEOISIE SOCIALISM ​ Working class ​ This form seeks to alleviate the worst aspects of capitalism EXPLOITATION without challenging its core structure, often proposing ​ Burgis exploits the proletariat by profiting from their labor reforms to pacify the working class while maintaining while paying them less than the value they produce capitalist interests ALLENATION CRITICAL-UTOPIAN SOCIALISM ​ Workers are alienated from the products of their labor, as ​ Early socialists like Saint-Simon, Fourier, and Owen are they have no control over the means of production or the praised for their visionary ideas but critiqued for lacking a fruits of their work, leading to a sense of disconnection and clear understanding of class struggle and the role of the powerlessness proletariat in achieving revolution PROLETARIANS AND COMMUNISTS POSITION OF THE COMMUNISTS IN RELATION TO THE VARIOUS EXISTING PROLETARIAT’S ROLE OPPOSITION PARTIES ​ proletariat is the only truly revolutionary class ALLIANCES WITH OTHER PARTIES COMMUNIST ​ Communists ally with various progressive and opposition ​ represent the interests of the working class as a whole and parties but maintain their distinct identity. They support work toward its liberation movements that advance the working class, even if those ABOLITION OF PRIVATE PROPERTY movements aren't explicitly communist ​ The Communist goal is to abolish bourgeois private property, INTERNATIONALISM which is used to exploit workers (the proletariat). ​ Communists advocate for global solidarity among the CLASS STRUGGLE proletariat and aim for the overthrow of the capitalist class ​ Communists aim to eliminate the class system by worldwide FOCUS ON CLASS STRUGGLE govern themselves and create a state tailored to their ​ Communists always prioritize the interests of the working interests, as opposed to the bourgeois state apparatus class, pushing for a revolution that leads to the abolition of COMMUNE AS A PROTOTYPE FOR A WORKER’S STATE class distinctions ​ seen as a model for a future workers' state. Marx argued that REVOLUTIONARY GOALS it represented the dismantling of the existing state ​ While engaging in local struggles, their ultimate goal machinery (the military, police, and bureaucracy) and the remains the establishment of a classless, communist creation of a more democratic, decentralized, and society through proletarian revolution proletarian form of governance ABOLITION OF THE STANDING ARMY ​ The Commune abolished the standing army, replacing it theses on feuerbach (1845) with a people’s militia. Marx emphasized this as a key Feuerbach’s materialism is criticized for being too contemplative. measure to prevent oppression by a separate military force Marx argues that Feuerbach focuses on changing consciousness under bourgeois control without considering human activity and practice as a force of SOCIAL AND ECONOMIC REFORMS change. Materialism should not only explain the world but also ​ Marx praised the Commune for implementing progressive transform it social reforms, such as regulating working conditions, HUMAN ESSENCE attempting to establish worker-run cooperatives, and ​ Feuerbach views human essence as an abstract, isolated promoting social equality being. Marx counters this by emphasizing that human FAILURE AND LESSONS essence is defined by social relations, suggesting that ​ Despite its progressive measures, the Commune was humans are inherently social and that individual identity is brutally suppressed. Marx highlighted its failure to fully shaped by societal conditions expropriate capital or secure control over the Bank of France PRAXIS as a missed opportunity. He saw the repression as a ​ Marx argues that human knowledge is rooted in practice, reminder of the ruthlessness of the bourgeoisie and it is through active engagement with the world (praxis) that we come to understand it. Thought must be connected excerpt from “the german ideology” to material activity and practical life SENSUOUS HUMAN ACTIVITY HISTORICAL MATERIALISM ​ Feuerbach’s materialism views humans as passive recipients ​ material conditions of a society—its economic structures and of sensations from the external world. Marx insists that modes of production—determine the political, social, and human beings are active creators of the world through intellectual life of that society. In other words, history is driven labor and social practices, underscoring the importance of by material, economic forces rather than ideas or human agency consciousness ROLE OF CIRCUMSTANCES AND HUMAN ACTIVITY LABOR IN HUMAN LIFE ​ Marx critiques Feuerbach’s deterministic view of the world. He ​ emphasize that human beings are defined by their labor, asserts that circumstances change only through human and it is through labor that people transform nature and activity, emphasizing that people are the active agents of create their social existence. Material production is the historical and social change foundation of all societal development THE INTERCONNECTEDNESS OF INDIVIDUAL AND SOCIETY BASE AND SUPERSTRUCTURE ​ The individual is not independent of society. Marx highlights ​ the concept of the "base" (the economic foundation, i.e., the that individuals are shaped by the social structures and means of production and relations of production) and the conditions in which they live, and these structures are altered "superstructure" (the political, legal, religious, and cultural by collective human activity institutions). The base determines the superstructure, CRITICISM OF IDEALISM meaning economic conditions shape the ideology and ​ Marx contrasts his materialist approach with idealism. institutions of a society Whereas idealism sees ideas as the drivers of historical CRITIQUE change, Marx emphasizes that material conditions and ​ criticize the idealist philosophy of the Young Hegelians, social relations are the real driving forces behind societal especially Ludwig Feuerbach, who they claim focus too development much on abstract ideas and consciousness, neglecting the real material conditions that shape human life and history CLASS STRUGGLE the paris commune ​ All of history is the history of class struggles. The ruling class, (address to the international workingmen’s association, may 1871) which controls the means of production, exploits the working WORKING CLASS SEIZING POLITICAL POWER class. Societal change occurs when these class ​ the first instance where the working class successfully took antagonisms lead to revolution, where a new economic control of political power. It demonstrated that workers could system is established ALIENATION ​ occurs because workers produce more value in a working ​ individuals are estranged from their labor, the products they day than what they receive in wages. The capitalist benefits create, and ultimately, themselves, due to the exploitative from this unequal exchange conditions of capitalist society CIRCUIT OF CAPITAL REVOLUTION AND COMMUNISM ​ Marx outlines the cycle of capital accumulation: M-C-M' ​ led by the proletariat (working class), that will overthrow (Money – Commodity – More Money). Capitalists invest capitalist society and establish a classless, communist money (M) to produce commodities (C), which are sold for society where the means of production are owned more money (M'), leading to profit. collectively ​ This cycle drives the continuous need for expansion in capitalism FETISHISM OF COMMODITIES the eighteenth brumaire of louis bonaparte ​ social relations in capitalist society are mystified by the HISTORICAL REPETITION process of commodity exchange. The value of commodities ​ "History repeats itself, first as tragedy, then as farce." He appears natural, rather than a result of human labor. This is argues that historical events and characters often recur, but called commodity fetishism, where social relationships in different forms. The coup of Louis-Napoleon echoes between people are obscured and appear as relationships Napoleon Bonaparte's rise but in a more absurd, farcical between things manner PRIMITIVE ACCUMULATION CLASS STRUGGLES ​ the historical development of capitalism through a process ​ class conflict in historical development. He argues that he calls primitive accumulation—the violent expropriation of revolutions and political changes are driven by the interests land, resources, and labor, which allowed the capitalist mode of different social classes, and the 1848 French Revolution of production to emerge and the subsequent rise of Louis-Napoleon are part of this CAPITALIST CRISIS ongoing class struggle ​ capitalism is inherently unstable and prone to crises. The BOURGEOISIE WEAKNESS drive for profit leads to overproduction, underconsumption, ​ bourgeoisie’s fear of the working class and how, despite its and eventually economic crises. These crises are inevitable economic power, it hesitates to exercise political authority because of the contradictions within capitalism directly. Instead, it often allies with more reactionary forces, like the military, to suppress popular movements capital, volume 3- chapter 2: the rate of profit ROLE OF STATE ​ becomes an independent force that can intervene in class RATE OF PROFIT struggles. Louis-Napoleon’s coup is an example of how the ​ defines the rate of profit as the ratio of surplus value (s) to state can act on its own behalf, separate from bourgeois the total capital advanced, which includes both constant interests, to maintain its power capital (c) and variable capital (v) SURPLUS VALUE AND TOTAL CAPITAL ​ The rate of profit depends not only on the surplus value capital, volume 1 (1867) produced but also on the magnitude of the total capital COMMODITY AND VALUE advanced. Larger quantities of constant capital (machinery, ​ analyzing commodities, the basic unit of capitalist exchange. raw materials) relative to variable capital (wages) reduce Every commodity has two aspects: use-value (its utility) and the rate of profit exchange-value (its worth in relation to other commodities) PROFIT AND EXPLOITATION LABOR THEORY OF VALUE ​ Even if the rate of exploitation (surplus value relative to labor ​ The value of a commodity is determined by the amount of costs) is high, the rate of profit can decline if the portion of socially necessary labor time required to produce it capital invested in machinery and raw materials (constant SURPLUS VALUE capital) grows compared to labor (variable capital) ​ key to his critique of capitalism. Workers sell their labor ORGANIC COMPOSITION OF CAPITAL power to capitalists, but they are paid less than the value of ​ the concept of the organic composition of capital, referring what they produce. The difference between the value to the ratio between constant capital and variable capital. A workers create and what they are paid is surplus value, higher organic composition (more investment in machinery which capitalists appropriate as profit and less in labor) generally leads to a lower rate of profit, LABOR POWER AND EXPLOITATION even if the workers are highly exploited ​ Labor under capitalism is a commodity itself. Workers sell CONTRADICTION OF CAPITALISM their labor power, but are exploited because the capitalist ​ The tendency for the rate of profit to fall is a central pays for only a fraction of the value they produce. The rest is contradiction in capitalism. As capitalists invest in surplus value technology to increase productivity and reduce labor costs, EXPLOITATION they inadvertently reduce the rate of profit, threatening  long-term profitability 2.​ Economic security IMPACT OF CIRCULATION 3.​ Social support ​ factors in the sphere of circulation (e.g. turnover time, credit) ​ property rights should be judged for their contribution in can affect the rate of profit but do not fundamentally positive freedom change the underlying dynamics of profit generation in ​ gov't intervention is only allowed of it promotes the citizen's production positive freedom ALFRED MARSHALL THE MODERN LIBERAL PERSPECTIVE ​ changed labels of Political Economy to Economics 1. emerged as a combination of appealing elements of the existing ECONOMICS- focuses on the scientific understanding of society, data ideological perspective analysis of scarce resources + science of rational choices 2. sought to promote social justice while preserving both private POLITICAL ECONOMY- Ethical Considerations, and both economic and property and democracy noneconomic values ECONOMIC CHIVALRY- public service and charitable contributions JEREMY BENTHAM ​ sought to develop scientific basis for social theory FAILING OF MARKET ECONOMY ​ PAIN AND PLEASURE were the sole determinants of human 1.​ unequal power in labor-management relations. behavior 2.​ presence of negative externalities like pollution. UTILITARIANISM- use instead of natural law bcoz of the changing 3.​ inability of the market to provide public goods. political environment in 18th century england ​ was not a strong advocate for gov't intervention ​ natural rights served to protect the status quo ​ UTILITARIANISM provided a flexible and pragmatic basis for JOHN MAYNARD KEYNES gov't intervention ​ saving is only beneficial if it channels back to the economy THE LAW OF DIMINISHING MARGINAL UTILITY- rich people get less through borrowing or investment pleasure from money than do poor people, so society's total utility will ​ low-income families purchase more than rich-income increase if we took rich's money and give it to the poor families, so gov't should increase taxes on the rich ​ redistribution could possibly undermine the security of MULTIPLIER EFFECT- as the economy slows, workers are laid off, and property rights and reduce incentives businesses close ​ he cure for recession was INCREASED GOV'T SPENDING, but it JOHN STUART MILL should be from borrowed money and not tax because it ​ there are superior pleasures than others if used with intellect could depress private businesses ​ still need to look for the QUALITATIVE DIFFERENCES IN PLEASURE JOHN RAWLS ​ common needs of human being cannot be considered as THEORY OF JUSTICE- intensive reexamination of the ethical the ultimate source of human fulfillment foundations of political economy ​ gov't should only interfere to prevent citizens from harming ​ modern liberalists were facing a dilemma in determining one another which property should be restrained and how much 3 SPECIFIC INTERVENTIONS: redistribution should occur 1.​ public funding for education. ​ without theory of justice and theory of the public interest, 2.​ gov't encouragement for birth control. gov't will be vulnerable to the pressures of self-interest 3.​ inheritance tax to offset the tendency for property holdings groups to become concentrated ​ people who were ignorant of their own position in society ​ he valued the role of superior minds in providing guidance would choose to protect the poorest groups since they can and leadership for the rest of society be a member of that group ​ he's supporting UNIVERSAL SUFFRAGE, but the intellects TWO PRINCIPLES OF JUSTICE: should have multiple vote to have a greater impact 1.​ each person would be granted the same basic liberties. 2.​ wealth would be redistributed so as to maximize the THOMAS HILL GREEN well-being of the poorest members of society. ​ humans do not seek pleasure directly, but to strive to fulfill the images of the kind of person they want to be NEO-CORPORATISM ​ argue that because these self image are formed in a social ​ government provide leadership in foresting cooperation environment, they reflect the shared values of a particular among corporation, labor unions, and other powerful interest culture groups POSITIVE FREEDOM- ability to develop a lifeplan and to pursue it ​ favors government aid to industries with significant potential effectively growth 1.​ Education NEW KEYNESIAN ECONOMICS  ​ led by Paul samuelson, affirmed the complementarity of ​ Advocated for marginal utility in economic analysis and keynesian macroeconomics and neoclassical economics argued that value derives from utility, not labor ​ useful in explaining the behavior of individual consumer and ​ The Theory of Political Economy (1871), which established firms utility as the basis for economic value ​ seek to explain the macroeconomy by analyzing its micro CARL MENGER (AUSTRIA) foundations ​ Proposed a subjective theory of value, emphasizing ​ blame imperfections in markets as lack of information individual preferences and the marginal utility of goods ​ call for active government policies to remedy the structural ​ Principles of Economics (1871), which became a foundational imperfections text for Austrian economics ​ preventing markets from operating efficiently LEON WALRAS (FRANCE/SWITZERLAND) POST KEYNESIAN ECONOMIC ​ Developed general equilibrium theory, which explained how KEYNES CALLED 2 MAJOR REFORMS prices and quantities are determined across multiple 1.​ government action to regulate aggregate spending markets simultaneously 2.​ government control or “socialization” of investment ​ Elements of Pure Economics (1874-1877), which ​ believe that government cannot maintain both price stability mathematically formalized the marginalist approach to and low unemployment for extended period equilibrium ​ believe that free market economy is not only prone to NEOCLASSICAL ECONOMICS stagflation, but cannot generate the growth in productivity ​ The Marginalist Revolution led to the development of required to remain in international markets neoclassical economics, focusing on individual decision-making and market equilibrium MATHEMATICAL FORMALIZATION THE MARGINALIST REVOLUTION ​ Introduced mathematical tools and modeling, making Emerged in the 1870s as a transformative period in economics economics more analytical and precise Shift from objective value theories (focused on labor and production the precursors- equilibrium between scarcity and demand costs) to a subjective theory of value (focused on individual preferences and marginal utility) Equilibrium as a balance between scarcity and demand emerged as a precursor to marginalist thought The Marginalist Revolution introduced the concept that the value of a good is determined by its marginal utility – the additional Before the Marginalist Revolution, economic thinkers began exploring satisfaction from consuming one more unit ideas that would later form the foundation of marginalist theory MARGINAL UTILITY EQUILIBRIUM ​ The extra satisfaction a consumer gains from consuming an ​ Equilibrium in economics is a state where supply equals additional unit of a good demand, resulting in stable prices and quantities ​ Value is not derived from total utility but from marginal ​ Equilibrium occurs when scarcity (supply) and demand utility, making it a subjective experience tied to individual balance, determining the price and value of goods consumption levels SUPPLY’S ROLE DIMINISHING MARGINAL UTILITY ​ Goods are scarce because resources are limited, so their ​ As more units are consumed, the additional satisfaction from availability directly influences value each subsequent unit decreases DEMAND’S ROLE SUBJECTIVE THEORY OF VALUE ​ Demand reflects consumers' desire for goods, influenced by ​ Prices are influenced by individual evaluations of goods individual preferences and willingness to pay rather than just production costs, aligning more closely with MARGINAL ANALYSIS personal needs and utility ​ early thinkers provided tools and ideas (like demand curves, ​ Unlike the classical focus on labor and production costs as diminishing utility, and the role of scarcity) that were determinants of value, the marginalists argued that value is essential for the Marginalist Revolution subjective and varies based on individual preferences and DYNAMIC PROCESS circumstances ​ precursors moved from seeing equilibrium as a static INDIVIDUAL DECISION-MAKING AT THE MARGIN outcome to a dynamic interaction based on consumer ​ Economic choices are made by assessing the benefits and preferences and resource limitations costs of a small change (e.g., consuming one more unit or MARGINALIST THEORY hiring one more worker) ​ By focusing on scarcity, individual choice, and subjective ​ Individuals and firms use marginal analysis to allocate value, these thinkers set the stage for the full development of limited resources effectively to maximize utility or profit marginalist theory in the 1870s WILLIAM STANLEY JEVONS ENGLAND) ANTOINE-AUGUSTIN COURNOT  ​ Equilibrium through demand and mathematical analysis ​ Introduced demand curves and quantitative analysis Influenced key economic fields, including microeconomics, JOHANN HEINRICH VON THUNEN consumer theory, and welfare economics ​ Marginal productivity and scarcity ​ Examined resource allocation and equilibrium based on real cost and opportunity cost scarcity HERMAN HEIRCIH GOSSEN ​ Diminishing marginal utility and subjective value Real cost versus Opportunity cost ​ Provided foundations for marginal utility and subjective value refers to the total sacrifice or value of the next-best effort required to produce a alternative that is given up good when a choice is made william stanley jevons Jevons argued that economic value is subjective and varies based It includes all resources used: It reflects the benefits foregone on individual preferences and needs labor, materials, time, and any by not choosing an alternative physical or mental strain option MARGINAL UTILITY involved in production ​ The value of a good is not fixed but changes with the context of individual consumption Real cost reflects the resource This concept emphasizes the expenditure in creating a subjective nature of value, as PRICE DETERMINATION product, which contributes to individuals assign different 1.​ Demand and Marginal Utility: Jevons showed that demand the subjective valuation of values to opportunities based depends on marginal utility, with prices adjusting to balance goods on their unique preferences and consumer satisfaction with costs circumstances 2.​ Classical to Neoclassical Economics: Jevons’ focus on In a market, real costs are taken Opportunity cost plays a crucial marginal utility helped move economic analysis away from into account when determining role in individual choice and classical ideas of intrinsic value (e.g., labor theory of value) the supply side of value, as they resource allocation influence the producer’s MATHEMATICAL ANALYSIS willingness to supply a good at ​ Jevons used mathematics to express economic concepts, a given price bringing rigor to economic theory NEOCLASSICAL ECONOMICS Individuals and firms assess ​ His ideas laid the groundwork for modern theories on opportunity costs when making consumer behavior, demand, and market equilibrium economic decisions, especially when resources are limited the jevonian revolution In production, opportunity costs THE THEORY OF POLITICAL ECONOMY (1871) help determine the most ​ Established the concept of marginal utility as central to efficient allocation of resources understanding value BREAK FROM CLASSICAL ECONOMICS Real cost focuses on the tangible resources and efforts spent in ​ Break from Classical Economics: Rejected labor theory of production value (classical approach) for a theory based on subjective utility Opportunity cost, on the other hand, captures the subjective aspect ECONOMIC CHOICE of economic decision-making, based on the alternative value that ​ Individuals allocate resources by comparing the marginal could have been obtained utility of options MARKET PRICES MARGINAL ANALYSIS ​ Prices result from individuals' willingness to pay based on the ​ Both real and opportunity costs contribute to marginal cost, marginal utility they perceive in goods which is critical in determining how individuals and firms NEOCLASSICAL ECONOMICS make incremental decisions ​ Paved the way for modern economics, especially in ​ For consumers and producers, both types of cost help consumer choice and price theory determine whether an additional unit of a good or service is MATHEMATICAL RIGOR worth producing or consuming ​ Introduced mathematical analysis to economics, focusing SUBJECTIVE NATURE OF COSTS on precise models of individual behavior ​ Opportunity cost introduced a new perspective where value  is not just about the physical resources used but also about ​ Rand heavily criticizes Altruism as it demands self-sacrifice the value of foregone alternatives and positions others’ needs above one's own SHIFT IN ECONOMIC THOUGHT ​ Rand argues that this is destructive to individual identity ​ Real and opportunity costs help explain why people may and freedom value the same goods differently, based on their personal ​ Altruism leads to moral guilt alternatives and sacrifices INDIVIDUAL RIGHTS MODERN ECONOMICS ​ According to Rand, the individual’s life and happiness are the ​ Opportunity cost is now fundamental in economics, highest moral purposes influencing fields like resource allocation, consumer choice ​ Rejects the notion that one has a duty to serve others theory, and cost-benefit analysis (collectivists ideas) OBJECTIVIST ETHICS ​ Objectivist ethics rejects faith, whim, and societal norms undermine rational thought AUSTRIAN POLITICAL ECONOMY ​ Morality is based on the objective reality of human nature Focuses on individualism and it rejects collectivists LOVE FAILURE OF KEYNESIAN ECONOMICS ​ According to Rand, love should be reciprocal and ​ Hindi machine ang economy, it is an organic transactional to be considered ethical “No economic freedom = no freedom at all” - HAYEK CHAPTER 1: THE OBJECTIVIST ETHICS ​ Economic freedom the ability of individuals to make their ​ Life is the standard of value and rationality as the highest own economic decisions without government interference, virtue therefore, if an individual does not have this, they can be ​ Man needs a code of ethics rooted in objective reality easily manipulated by the politician CHAPTER 3: THE ETHICS OF EMERGENCIES ​ Criticizes ethical theories based on hypothetical emergencies ON THE ROAD OF SERFDOM ​ Asserts that morality should guide morality, daily life rather ​ Government is the cause/root of the problem, examples are than rare, extreme situations corruption etc CHAPTER 4: THE “CONFLICTS” OF MEN’S INTEREST MAIN QUESTION: if the government is the problem, why should we let ​ Rational self-interest avoids conflicts them fix it? ​ Genuine conflicts arise from irrational goals or demands for ​ economic freedom is significant bcs you provide something unearned rewards for yourself CHAPTER 7: DOESN’T LIFE REQUIRE COMPROMISE ? ​ Individuals has the right to make decision for their lives ​ Compromise should only acceptable when it involves non-essential values CRADLE TO THE GRAVE ​ Compromising on principles is destructive and immoral -​ Government nurture individuals since birth CHAPTER 12: MAN’S RIGHTS ​ Defines the role of government as protecting individual Democracy rights -​ Rule of law ​ Elaborates on the concept of rights as conditions of existence proper to rational beings CHAPTER 13: COLLECTIVIZED RIGHTS THE VIRTUE OF SELFISHNESS BY AYN RAND ​ Critiques societal norms that treat individuals as interchangeable parts of a collective SELFISHNESS ​ Advocates for recognition of individual autonomy ​ Ayn rand clarifies the definition of selfishness by stating that CHAPTER 14: THE NATURE OF GOVERNMENT it is not an exploitation/disregard other people but the ​ Advocates for a limited government whose sole purpose is to rational to pursue one’s interest protect rights ​ Opposes the common view of selfishness as inherently evil, ​ Opposes collectivism, socialism, and totalitarianism redefining it as virtue essential for human flourishing RATIONAL SELF-INTEREST ​ Sacrificing oneself for others or vise versa is morally wrong ​ Rationality is the guiding principle of selfishness ​ Decisions should be made based on reason, long-term benefits, and personal values ALTRUISM  planet’s finite resources BUSINESS CYCLE 2.​ SOCIAL- focuses on improving the quality of life for the population as a whole. It includes environmental justice, human health, resource security, and education. It also promotes values that respect individual rights and equality 3.​ ECONOMICS- focuses on promoting growth and financial stability while ensuring resource efficiency. It aims to improve the standard of living Business cycles are a type of fluctuation found in the aggregate economic activity of a nation—a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions. This sequence of changes is recurrent but not periodic Notes by investopedia BEHAVIORAL ECONOMICS LEMMINGS METHODOLOGY (ANALOGY) ​ commit mass suicide (tumatalon sa cliff) HERD MENTALITY ​ an individual follow what mass will do (bandwagon) ​ herd mentality does not make u smart, ure just following the trend EXAMPLES 1.​ 1929 stock crash/ great depression 2.​ 2008 housing market PARETO OPTIMALITY ​ Pareto optimality, is an economic state where resources cannot be reallocated to make one individual better off without making at least one individual worse off BLACK SWAN EVENT ​ unpredictable event DONALD TRUMP EVENT ​ guessing the future is a problem because we have black swan event REAL ECONOMY ​ economy that affects us as an individual FINANCE ECONOMY ​ monetary activities ​ It is our job to protect the real economy from the finance economies’ fallout PILLARS OF SUSTAINABILITY 1.​ ENVIRONMENTAL- focuses on protecting the environment and reducing waste and pollution. It sets limits on the