ECO 3132 University of Ottawa History of Economic Thought Discussion Questions


1. Adam Smith, Thomas Malthus, and Karl Marx, all held the view that there was a general long-run tendency for wages to remain at their subsistence level. Carefully explain at least two of these authors’ theoretical explanations. [8] Since real wages did rise eventually by the late nineteenth century (even though, admittedly, they have actually stagnated again somewhat since the 1970s), what was missing in each of these two theories that may have not been considered in the original analysis? [2] 
2. Following Sir William Petty (1662), David Ricardo (1815) developed a theory of profit based on the uniqueness of agricultural production (the corn sector). Briefly describe this theory. [4] What are the strengths and weaknesses of Ricardo’s theory of profit vis-à-vis that of Adam Smith? [2] What role did the rate of profit on the marginal land (at the extensive margin of cultivation) play in Ricardo’s explanation of differential rent? [2] How was this theory of profit used to make predictions on the possible course of the capitalist economies and what was Ricardo’s logical flaw in the argument since Ricardo’s predictions did not materialize? [2] 
3. David Ricardo and Karl Marx adopted a labour theory of value. Despite their general acceptance of this theory, both recognized that natural prices or ‘prices of production’ would not normally be proportional to their underlying labour values. Describe their specific variants of the labour theory of value. [4] Carefully discuss how Marx developed a technique that could systematically transform labour values into prices of production. [4] In what sense can it be said that there exists a ‘transformation problem’ in the method proposed by Marx? [2] 
4. Discuss the main issues surrounding the debate between the Currency and the Banking Schools. [6] Among other things, the advocates of the Banking Principle argued that the amount of money in circulation was primarily the effect of changes in economic activity and not the cause. This view rested upon the acceptance of the ‘Real Bills’ doctrine and the ‘Law of Reflux’. Explain these two doctrines/laws and how they were used against the metalist perspective of the Currency School. [4] 
5. In his discussion of the three ‘circuits of capital’, Marx sketched out a system that could reproduce itself annually in both physical and money terms. Yet there was one element in the total chain that was critical in explaining the growth path of the economy. Briefly present at least two of his three circuits of capital approach [4]. Show what role ‘capitalist consumption’ plays in explaining his schemes of ‘simple’ and ‘expanded reproduction’ using both the circuits of capital approach and his two-sector macroeconomic model as developed in Vol. II of Capital. [6] 
6. Discuss the ‘equimarginal principle’ as initially espoused by first-generation marginalists, such as Jevons and Menger in the early 1870s. [4] Show how this general principle, which was first believed to be applicable to demand and the determination of relative prices of commodities, was extended by second generation marginalists in the 1880s and 1890s to analyze supply and the determination of factor input prices. [4] What was so special about the application of the equimarginal rule to Marshallian demand analysis? How restrictive was his assumption to the development of an operational concept of ‘consumer surplus’? [2] 
7. Orthodox neoclassical economic analysis starts by making assumptions about how humans behave at any time and then focuses on the economic effects of this presumed human behaviour. In referring to this traditional methodology of homo economicus, Thorstein Veblen (1919) argued that economists should abandon these highly restrictive presuppositions about human behaviour and should begin to question why and how communities evolve and come to behave as they actually do. Explain what Veblen meant by the above statement and show in what way his historical-anthropological approach differed from that of his neoclassical counterparts. [6] Veblen’s approach is particularly evident in his study of consumption behaviour. What is ‘conspicuous consumption’ and how did it revolutionize the theory of consumer demand traditionally based on utilitarian analysis? [4]
8. Briefly describe the two major strands of the quantity theory as they emerged at the turn of the twentieth century, generally referred to as the Fisherian and Cambridge versions of the quantity theory. [6] In his analysis of a ‘pure credit’ economy, Knut Wicksell (1898) swept aside the underlying causality subsumed by the orthodox quantity theorists and elaborated a theory of endogenous money along the lines first put forth by Thomas Tooke and the other nineteenth-century advocates of the Banking School. Discuss briefly this Wicksellian framework and describe Wicksell’s ‘two interest rates’ theory of aggregate price formation. [4] 
9. Following the Austrian tradition in economics and also Wicksellian monetary theory, a number of writers during the interwar years before the publication of Keynes’ General Theory, developed theories of the business cycle that had focused on 3 the time structure of production. Explain how any one writer (either F.A. von Hayek of Prices and Production (1931) or J.M. Keynes of the Treatise on Money (1930)) developed a theory of the business cycle. [ 8] Why was their focus primarily on price fluctuations and not on output adjustment? 
10. In the preface to his General Theory (1936), J.M. Keynes explained: “This book … has evolved into what is primarily a study of the forces which determine changes in the scale of output and employment as a whole; …” In what way did the theoretical framework that Keynes developed in the General Theory permit him to offer an explanation of the determination of the level of aggregate output and employment? How important was the concept of ‘effective demand’ in his analysis? Define and elaborate. [6] Why did he believe that the doctrine of the ‘classical’ economists was merely a ‘special’ case of his more ‘general’ theory that recognized the existence of involuntary unemployment? In what sense was unemployment primarily ‘involuntary’ to Keynes. [4]

Explanation & Answer:
1250 Words

Price Fluctuations

involuntary unemployment

classical economists

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