Tuesday, February 9, 2010

History of Economic Thought Beginnings

I'm taking an independent study course on the history of economic thought this semester. Basically I will be reading secondary sources on the important items that Smith, Marx, and Keynes wrote as well as some primary sources and thoughts on secondarily important economists.

Something that we take for granted in Econ 101 taught in a capitalist society is that demand drives the price level for a given product. For example, if I design a blue football but nobody thinks it is cool, I'll probably have to sell it for $5 or less because the demand is so low. But say that my blue football gets immensely popular in the eyes of 15 year old dudes, then I can sell the ball for $25. The point is that if no one wants to buy my product, the value I provided is obviously low. But if people want my product, then the value I provided is obviously high. Unfortunately Adam Smith, the father of modern economics and the leader of the "classical liberals" group couldn't quite figure out how to explain this concept, although practically he understood the truth of the matter. But because he failed to describe this rule of value being based upon utility as opposed to inputs, two future economists took much of his proper teaching and messed it up with a ridiculous theory called the Labor Theory of Value.

Thomas Malthus and David Ricardo both had the idea that value of a product is determined by the amount of labor input. In a very simplified example, they considered that a product that took ten hours to produce was more valuable than a product that took two hours to produce. How absurd!

This may not seem like a serious problem, but these authors influenced a certain Karl Marx and Frederich Engels, co-authors of The Communist Manifesto. To be continued...