ECON 200 - Principles of Economics:

INTRODUCTION

Phil Martinez, Economics


Lecture Outline:
Contrasting Definitions of Economics
The Classical Definition of Economics:

            Economics is the study of the production, distribution, and growth of
            wealth in society.


The Major Classical Economists (mid 1770s to mid 1800s):

             Adam Smith
                         Elaborated the Theory of the Free market.

      Major Works:
                         The Theory of Moral Sentiments, (1759).

             Thomas Malthus
                         Theory of Population: economic growth results in larger population
                         which eventually must result in resource depletion.

                         Analyzed Depressions ("general gluts"), Povertty & Unemploument as
                         generated by forces within the market economy.
      Major Work:
             David Ricardo
                         Developed the Theory of Free Trade.
                         Introduced mathematical analysis.
             Karl Marx
                         Contributed most complete structural analysis of capitalism.
                         Emphasized both the "progressive" nature of capitalism and its
                         generation of "internal contradictions", for example, the "increasing
                         concentration of capital".
 
     Major Work:

     Capital ( Das Kapital), Vol. 1 - 3

             John Stuart Mill
                         Contributed to the establishment of "Social Welfare Economics".

The Neo-Classical Definition of economics (late 1800s to present):

Economics is the study of how individuals and societies optimally allocate scarce resources, to meet their needs and desires.

This approach translates Free Market and Free Trade Theory into mathematics by applying a single mathematical method of analysis to all economic questions. The mathematical method that is used is "constrained maximization", which is a calculus technique that calculates the optimal (either the maximum or minimum) result of a process, beginning from a specified point.

This definition:
    • emphasizes the incentives that generate optimal solutions to all economic questions.
    • claims to identify the essential structure and method for solving all economic issues, based upon mathematical proofs of logical reasoning.
    • treats Economics as the study of "optimal choice".

Other views:

             There are many other views which challenge or restrain the application of
             the Neo-classical approach to economics. Some of these criticisms are:
    •  People do not always make choices in a manner that attempts to optimize the resulting benefits.
    • We cannot always know what the optimal or best choice would be.
    • An optimal solution may not exist.
    • The concept of best or optimal is socially determined, and thus is variable.
    • There are many social institutons that constrain or alter optimal results.