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week 1: 2. classical school (1776-1871) (Main ideas: Classic school:…
week 1: 2. classical school (1776-1871)
Two revolutions:
1.Scientific revolution
Natural laws → laissez faire
Period of enlightment (de verlichting)
2. Industrial revolution
Competition
Low paid labor force
Huge growth of industry
Main ideas:
Classic school: economic liberalism
3. Harmony of interests
•Serve society’s interest best by pursuing private interest
4. All economic resources and activities important
•Agriculture, commerce, production, international exchange
2. Self-interested economic behavior
•Profits, wages
5. Economic laws
•Law of comparative advantage, law of diminishing returns, labor theory of value, etc.
1. Limited government intervention
•Enforcing property rights, public education, national defense
Adam Smith (1723 - 1790)
Professor University of Edinburgh (1748) and University of Glasgow (1751):
David Hume
Private tutor for young Duke of Buccleuch on journey
through France (1764):
Francois Quesnay
Attended University of Glasgow
WORKS
Theory of Moral Sentiments (1759)
The Wealth of Nations (1776)
5 books:
Price theory
Price formation and determination
Division of labor
Capital accumulation and financial system
Historical (development agriculture in Europe)
International trade
: criticism on mercantilism
Role of public sector
Price theory 1.
Labor theory of value: relative prices are determined by
relative production costs
Example hunting society – labor costs
Division of labor increases productivity
→First to put focus on labor productivity!
Developed society – labor, capital, and land costs
→seemingly no role for demand in formation of prices
Price theory = theory of value
Value in use
Value in exchange