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week 1: 1. Intro: Pre-Adam Smith (Scholastics (Determination price = in…
week 1: 1. Intro: Pre-Adam Smith
Aristotle (384-322 BC)
Ex reasoning eco issues
Principle of diminishing marginal returns
Exchange can only come about if there is a potential surplus from
the transaction that parties can share (money simplifies transaction)
No understanding about eco system as whole yet
Mercantilism
Positive surplus in balance of trade
Limited import ( only raw materials, most production domestic)
Promote export ( inflow silver and gold)
Aim: promote country's military and eco power ( favorable balance of trade as measure for welfare)
Scholastics
Determination price = in the interest of society
"natural price" < perfect competition
-cost of production
-consumers' perception of utility of good
Priests/teachers at medieval universities (13th C)
=> attempt to establish a systematic theory based on eco laws
Pre-classicist: David hume (1711-1776)
Monetary theory for open eco
long run theory
international adj following domestic money shock
No effect of money stock on real eco (<--> mercantilist)
contours for later developed quantity theory of money (MV=PT)
Quesnay (1694-1774) and physiocrats (quesnay's followers)
Tableau economique (1759)
National accounts model
Empirical knowledge about model parameters
Supplements to tables
Agriculture=base eco wealth
government should promote free competition and free trade : "laissez faire laissez passer" (<-->mercantilist)