6) classical theories (1)
TRANSCRIPT
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Classical
Theories ofDevelopment
Sunny Jose
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Origins• Christianity: Work as a punishment to
virtue
• 16th cent Protestant: glorifying god towork
• Calvinist: God’s calling is gloried viaardent! sel"ess la#our
• $dlness is dishonour to God
• %hese new ideals were championed #yartisans! craftsmen & manufacturers
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Mercantilism
• 'asted for ( centuries! from 1)th cent
• $deas! institutions & economic
practices that supported a#solutiststate! monarchy & aristocratic classes
• *imed at increasing power of the state
• +tate’s power rests on economicmeans! not #ravery
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Mercantilism
• ,oney & precious metals are wealth
• Core of mercantilism: #alance of trade
• * country with a favoura#le #alance oftrade is prosperous & powerful
• -.port more than import! leading to
the in"ow of precious metals! esp/ gold
• %o achieve this! trade was controlled #ythe state
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Mercantilism
• Why0 %rade is a ero2sum game• ,anufacturing was protected
• -.port was promoted
• $mport was restricted
• 3ationalist: promotes rational thinking
• +cience 4not God5 as a solution tomaterial pro#lems
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Enlightenment
Philosophers advanced ideas againstthe politico2economic system
*gainst feudalism and landed no#ility
+upported the cause of smallproducers! artisans! small farmers
Whose toil formed the #asis of
mercantilist state power%homas 8o##es! 9ohn 'ocke! avid
8ume
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Enlightenment
$ntroduced the ideas of self2interest!natural rights! property rights
8o##es: +elf2interest as the #asis of
social morality! organisation of society'ocke: 8umans have the right to
preserve their lives and right to have
su#sistence derived from earth+uch products have to #e made from
earth through la#our! individuals have
natural rights over their person
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Enlightenment
3ights over one’s e;orts and products
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Classical economics
-merged from congruence of theseideas
3ationality and re=ection of
superstitions! religious #eliefsWork as a cherished value>virtue
3e=ection of feudal! hierarchical system
Promotion of self2interests! individualrights
?avoured the entrepreneurs the most
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Classical economics
*dam +mith to 9ohn +tuart ,ill+mith: 8umans possess an inherent
urge to trade
*s traders! humans are self2interested
?or what0: to make money
8arness self2interest as an economicmotive! key to wealth & prosperity
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Adam Smith
'a#our theory of value@alue originates from la#our! not utility
'a#our as the measure of
e.changea#le value of commodities
-arly society: physical la#our used toproduce goods determined the price
,oney from the sale went to la#ourer!savings of la#ourers created capital
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Adam Smith
Capital could #e used to hireadditional workers! who also producedvalue
Capitalists use the capital to employindustrious people
%hey take new initiatives! which also
involve risks
Prot had to #e given to risk taker 4thecapitalist employer5! not the la#ourer
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Adam Smith
Common land #ecomes privateproperty! rent to owner of land>factory
*dvanced society: natural price or
e.changea#le value should consist of:Wages 4la#ourers5! rent 4factory
owners5 and prot 4capitalists5
Competition determines the relation#etween natural and market prices
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Adam Smith
When market price is higher than naturalprice! capitalists convert capital & landinto more prota#le employment
-co growth: comes from capital viasavings from revenues through hard work
-G also reAuired a culture rooted in
morality* system of natural li#erty that
respected higher virtues
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Adam Smith
%here should #e no articial impedimentto trade! markets and e.change
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Adam Smith
9ust economy also had to provide highwages for workers
+pecialisation! markets and trade are
the #ases of the prosperity of nations?ree trade and well functioning
markets will lead to eBcient allocation
of scarce resources
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Adam Smith
+pecialisation promotes eBciency! savestime! increases production
+ociety organised #y self2interest needs a
regulating mechanismCompetition! not the state! is the
regulating mechanism
'ong run: free markets & competitionwould drive prices towards natural orsocially =ust levels
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Adam Smith
%he we# of self2regulating markets is theinvisi#le hand which:
rganise the economy eBciently and
%ransform private self2interest into pu#licvirtue
,arkets as virtuous institutions of:
+ocial eBciency!rivers of invention and innovation and
3isk taking