Little History of Economics, A - Niall Kishtainy

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Here is a summary of the key points from the introduction to A Little History of Economics:

• Economics is the study of how societies use scarce resources to satisfy unlimited human wants and needs. It looks at how choices are made between different uses of resources.

• Economists see resources like pens and books as scarce even if easily available, because desires are potentially unlimited while resources are limited. This means choices must be made.

• Cost is not just monetary price, but also opportunity cost - what must be forgone by choosing one option over others. Scarcity and opportunity cost show the necessity of making trade-offs.

• Economics aims to understand how societies overcome scarcity and its worst effects, such as life-threatening poverty in poor nations. Theories need to be grounded in real-world functioning of different economies.

• Key components of an economy are firms, workers, consumers, financial institutions like banks, and governments. Economics studies human behavior and decision-making in this economic system.

• While originally focused on households, today economics also examines firms, industries and markets. But individuals and households remain fundamental as ultimate consumers and workforce.

• Economists take a scientific approach, seeking to explain the economy through identification of causal relationships and laws, like mechanics of a rocket. The goal is understanding, not making value judgments.

• Economists look at two branches of economics - positive economics and normative economics. Positive economics objectively describes economic situations and looks for economic laws without judgement of good or bad. Normative economics makes judgements about whether economic situations are good or bad.

• Accurate observation (positive economics) combined with wise judgement (normative economics) can help economists create richer and fairer societies where more people can live well. They need “cool heads but warm hearts” according to Alfred Marshall.

• Modern economics emerged relatively recently in history alongside the rise of capitalism. Under capitalism, resources are largely bought and sold via markets and there are capitalists who own capital and workers who are employed. This differs from pre-capitalist societies.

• Economics is still developing its ideas and perspectives. Economists are sometimes accused of overlooking hardships faced by disadvantaged groups or failing to foresee crises because of inherent biases from their backgrounds and systemic influences. Studying history can help economists gain self-awareness and see issues from new angles.

• In the Bible, work and earning a living became difficult after Adam and Eve’s sin in the Garden of Eden. They had to work hard to survive.

• Early Christian thinkers like Augustine of Hippo and Thomas Aquinas grappled with how Christians should participate in the economy and view wealth/poverty.

• Augustine saw the economy as the “City of God” governed by both human and divine laws. Wealth was a necessary gift from God but shouldn’t be loved. One should focus on a good life, not possessions.

• After Rome fell, society decentralized into local feudal systems. Kings granted land to loyal warriors, who protected the land and gave crops to the lord in exchange. This non-monetary system was governed by religious authorities.

• Aquinas lived as the feudal system was changing with new commerce. He provided guidance for Christians in this shifting economic landscape. Both he and Augustine emphasized proper attitudes toward wealth and focused on using it for good ends rather than loving it for its own sake.

• Overall, early Christian thinkers adapted Greek and Roman ideas to develop a theology and framework for how Christians should view work, wealth, poverty and participation in the economy given human imperfections and the need to earn a living.

Thomas Aquinas came from an aristocratic family who tried to discourage him from becoming a monk by putting him in one of their castles with a prostitute, but he refused temptation and continued his religious studies. Eventually his parents released him and he moved to Paris to further his intellectual and religious pursuits.

Aquinas believed in a divinely ordained social hierarchy like a beehive, with different roles for people to play. He argued that some economic activities like profit from trade were acceptable as long as the money was used for good purposes and the poor were supported. He discussed the concept of a “just price” for goods that was neither too high nor exploiting customers.

Aquinas opposed the medieval practice of usury (lending money with interest), which was condemned by the church. As trade grew in cities, banking and insurance also developed but were still seen as sinful. Aquinas argued some interest could be justified to compensate lenders for lost opportunities. This started to shift church thinking on reasonable interest rates to support the growing economy.

Aquinas wrote as commerce and towns were reviving in Europe after a decline. New merchant classes emerged who stimulated trade but challenged traditional religious teachings. Aquinas acknowledged some new economic realities while trying to integrate them with Christian doctrine. His views had a moderating influence on church thinking regarding money, profit and commerce.

• The story of King Midas teaches that wealth should not be defined by gold alone, as he could not eat the golden food he touched and nearly starved.

• Explorers traditionally sought gold, and conquistadors like Cortes believed it could “cure” sickness, referring to Spain’s thirst for gold from the Americas starting in the late 1400s.

• Mercantilism held that a nation’s wealth came from accumulating gold. Spain amassed gold but became obsessed like the dragon Smaug, while England saw opportunities to raid Spanish treasure ships.

• Mercantilist thinkers like Thomas Mun and Gerard de Malynes argued nations should pursue trade surpluses to gain gold. This involved encouraging exports and restricting imports through taxes.

• Merchant companies with royal charters, like the English East India Company, expanded trade globally. Mercantilists believed this benefited both merchants and the nation.

• Later critics like Adam Smith argued mercantilism mainly served merchant interests and failed to uncover objective economic laws. It became outdated after Britain lost its American colonies and a market.

• While their preoccupation with gold seemed misguided later on, the mercantilists helped establish commerce as central to national power in their era when gold was the primary medium of exchange.

• Quesnay believed France’s economy was weak and unproductive compared to Britain’s, mainly due to high taxes imposed on French farmers that drained wealth away to support the royal court and aristocrats.

• As a physiocrat, he thought agriculture was the primary source of a nation’s wealth since it harnesses nature. Manufacturing/industry just transformed existing resources without creating new wealth.

• He advocated lowering taxes on farmers to increase agricultural output and the “net product” - the surplus after farmer needs were met that fuels the wider economy.

• Quesnay used an economic model called the Tableau Economique to depict the circular flow of wealth between farmers, landowners, and craftsmen when the surplus increases or decreases.

• He argued for freer agricultural trade and fewer market controls to boost farmer profits and the surplus. This became known as laissez-faire economics.

• Quesnay both criticized the current system but remained loyal to the monarchy and aristocracy, believing in their rule despite urging economic policy changes. So he thought reform possible within the existing regime.

Adam Smith argued that powerful people in their societies do not need to directly manage or organize economic activity for a society to prosper. Instead, he put forth the idea of the “invisible hand,” wherein individuals pursuing their own self-interest through voluntary exchange can unintentionally benefit society as a whole.

Specifically, Smith believed that when people are free to buy and sell goods and services in a market, specialization and the division of labor emerge organically. Producers specialize in specific goods or parts of the production process. Through exchange and trade, they are able to satisfy more wants and needs, both their own and others’. This increases productivity and lowers costs.

According to Smith, this process is guided by an invisible force rather than any central planner or manager. Individual self-interest and exchange lead to overall economic cooperation and harmony without intention or design. It is a more efficient system than if powerful people directly organized or micromanaged the economy. This became a foundational idea in modern economics.

• Adam Smith saw the point of the economy as providing goods for consumption, whereas mercantilists cared more about producing goods to sell abroad for gold.

• David Ricardo was a successful British stockbroker who became interested in economics after reading Adam Smith. He applied logic and analysis to understand how Britain’s growing wealth was dividing between landowners, capitalists, and workers.

• Ricardo argued that high food prices, caused by restrictive Corn Laws, actually boosted landlord rents rather than farmer profits. Farmers had to pay high rents to landlords for fertile land.

• High grain prices from the Corn Laws also reduced capitalist profits by raising wages and the costs of feeding workers. Only landlords benefited from high food prices.

• Ricardo said removing the Corn Laws would lower food prices, helping workers and allowing capitalists to invest more in production. But reform faced resistance from landowning interests who wanted to maintain high rents from artificially high grain prices.

• Ricardo’s strict economic logic was novel but initially difficult for some to accept. His arguments eventually helped convince Britain to repeal the Corn Laws in the mid-19th century, shifting economic power away from landlords.

• In the 19th century, the Industrial Revolution created wealth for some but deep poverty for many who lived in grim city conditions. Reformers questioned the idea that the poor were to blame for their poverty.

• Charles Fourier thought capitalism was brutal and inhuman, keeping people hostile towards each other. He proposed an alternative “phalanstery” society where people lived communally and fulfilled all their passions through varied work. However, his ideas were too radical to implement.

• Robert Owen believed people’s characters were shaped by their environments, not innate qualities. He set up a “model village” cotton mill community called New Lanark to show a humane alternative to factories. Though his wider plans failed, New Lanark experimented with reforms like education for children.

• Both Fourier and Owen imagined utopian societies to replace the problems of industrial capitalism and save humanity. While their specific proposals were impractical, they raised important questions about work, society and the treatment of the poor.

• Thomas Malthus was an early 19th century clergyman and economist who put forth the theory of population growth known as Malthusianism.

• He argued that population grows exponentially while food production grows arithmetically, so population will inevitably outstrip food supply if left unchecked.

• This contradicted earlier utopian thinkers like Fourier, Owen and Saint-Simon who believed progress could eliminate poverty. Malthus believed overpopulation would doom many to misery.

• He analyzed the writings of Condorcet and others who predicted humanity’s inevitable march to equality and prosperity. Malthus argued population growth would prevent this.

• Malthus believed attempts to help the poor, like charity, would backfire by enabling more population growth and furthering the imbalance between population and food supply.

• His ideas achieved fame and made him considered a pessimist, though he aimed to draw attention to limits on human perfectibility and warn of societal dangers from unrestrained population growth.

• His doctrine of population as a check on human progress influenced later thinkers and depicted the view of Scrooge in Dickens’ A Christmas Carol regarding the “surplus population.”

• Karl Marx and Friedrich Engels wrote The Communist Manifesto in 1848, predicting the coming revolution of the working class against capitalism.

• The Manifesto warned that communism was haunting Europe as a threat to overthrow the existing capitalist system. Under communism, workers rather than bosses would control everything, with no private property.

• Marx was excited by revolutions breaking out in 1848 in France and other parts of Europe, thinking they signaled the start of the capitalist overthrow. However, the revolutions fizzled out.

• Marx studied economics intensely and aimed to develop a complete theory of capitalism in a massive book, though it took many long years. He withdrew to London where he led a group of fellow revolutionaries, often scolding them publicly.

• Marx believed that history involved class struggles between the rich and poor, bosses and workers. He hoped to see the proletariat overthrow the bourgeoisie capitalists, but the death of capitalism was proving a long, drawn-out process rather than the swift revolution Marx initially predicted.

• Karl Marx struggled for over 20 years to complete his major work Capital, all while facing financial difficulties, illness, and family hardship. He would take refuge at the British Museum to research and write.

• Marx suffered from painful boil infections (carbuncles) which he tried to treat with arsenic. He completed the first volume of Capital while standing due to very inflamed boils.

• Marx believed capitalism contained internal contradictions that would inevitably lead to its downfall and replacement by communism. He saw capitalism as dividing society into classes and creating conflicts between capitalists and workers.

• Capitalists profited by exploiting workers and extracting “surplus value” from their labor. Competition kept wages low while capitalists tried to maximize profits. This caused growing tensions that Marx thought would collapse the system.

• Marx predicted workers would eventually rise up, seize control of the means of production like factories and fields, and establish a communist system without private property or class divisions. This would resolve the conflicts of capitalism.

• Marx’s ideas influenced the development of communist political movements and regimes in places like Russia, China, and Eastern Europe in the 20th century. However, those regimes differed in key ways from Marx’s vision of communism.

• William Jevons was an early economist who developed the idea of marginal utility - the principle that the satisfaction or utility one gets from consuming an additional unit of a good diminishes as consumption increases. This became a foundational concept in economic theory.

• Jevons’ concept of marginal utility helped explain how consumers spend money by comparing the marginal utility of goods. They will buy up to the point where the marginal utility per monetary unit is equal across different goods.

• Alfred Marshall took Jevons’ ideas further and developed theories of demand, supply, and equilibrium that are still taught today. He modeled how demand curves slope down and supply curves slope up based on marginal utility and costs of production.

• Marshall combined consumer and firm behavior into the theory of supply and demand equilibrium. Equilibrium occurs where quantity demanded equals quantity supplied at a single market price.

• Other concepts like competition and rational economic decision-making based on marginal analysis were also developed. This framed the economy as harmonious interactions rather than exploitation, as theorized by Marx. Marshall termed this the “neoclassical” economic approach.

Here is a summary of classical economics according to Smith and Ricardo, and neoclassical economics:

• Classical economics (Smith and Ricardo): Markets and competition between self-interested individuals power the economy and lead to prosperity. Free trade between nations allows for specialization and benefits all through increased production.

• Neoclassical economics: Abandoned notions of an ultimate value measure like labor or gold. Value comes from supply and demand - a rare bottle of wine costs more due to limited supply and high demand. Introduced the concept of “rational economic man” who perfectly calculates costs and benefits at the margin.

• It emerged as economic stresses eased in the 19th century due to industrialization increasing living standards. The focus shifted from Marx’s class tensions to models of rational individual behavior in markets. While a simplification, it became the dominant economic theory of individual behavior. Some critics argue it is not a realistic portrayal of actual human psychology and decision-making.

In summary, classical economics saw free markets as driving growth, while neoclassical economics modeled individual rational decision-making within those markets as the primary mechanism, rather than factors like labor. It shifted the field’s focus, though remained a simplification questioned by some.

• Lenin argued that capitalism and the trends of economic interconnection between nations, monopoly capitalism, and imperialism were intrinsically linked and led to conflicts between nations and eventually war.

• He was influenced by John Hobson’s theory that under monopoly capitalism, more income goes to a small number of wealthy financiers. This leads to higher savings but fewer good domestic investment opportunities, as workers cannot afford purchased produced goods and the wealthy classes have satisfied their consumption needs.

• According to Hobson and Lenin, this dynamic drove Western nations to “invest” their excess savings in foreign territories through imperialism - invading lands, establishing colonies, and exploiting resources/people. Imperialism was thus a product of the structural pressures within advanced capitalist economies at that stage, not a heroic or civilizing mission as conventionally believed.

• Lenin saw WWI as confirmation of his Marxist theory that capitalism inevitably leads to conflicts between nations due to its imperialist tendencies once monopolies emerge and savings outpace domestic investment opportunities. The socialists supporting their own countries in war betrayed their anti-war internationalist principles.

• Economist Arthur Pigou pioneered the field of welfare economics, which examines the overall benefit to society from economic decisions by individuals, firms, etc.

• He argued that markets can “fail” by leading people to make choices that benefit themselves but have damaging side effects on others. This produces an inefficient outcome from society’s perspective.

• As an example, he used a neighbor playing the trumpet. The neighbor’s private benefits (enjoyment) may outweigh private costs (tired lips) but ignore the external costs imposed on others (annoyance).

• Similarly, a factory may produce at the profit-maximizing level by ignoring external costs like pollution that hurt downstream fishermen. The factory’s decisions don’t account for these broader social costs and benefits.

• Pigou said economics should judge economic situations based on overall welfare to society, not just private costs/benefits. Market failures occur when private and social costs/benefits are not properly aligned, leading to inefficient outcomes. This insight laid the groundwork for welfare economics.

• Joan Robinson developed a new theory in the 1930s to explain firm behavior in markets with many differentiated goods (like different brands of soda). Her theory, presented in her book The Economics of Imperfect Competition, challenged Alfred Marshall’s prior conception.

• Edward Chamberlin from Harvard developed a similar theory around the same time called Monopolistic Competition. Robinson and Chamberlin’s theories looked at markets with multiple varieties of the same basic good, like different soda brands.

• Their theories advanced economists’ understanding beyond Marshall’s model of competitive markets with undifferentiated goods. They sought to explain the behavior of firms in markets producing many substitutable but different varieties of goods, like different cola brands.

• Their theories sparked a rivalry between the representatives of Cambridge UK (Robinson) and Cambridge Massachusetts (Chamberlin) over whose theory was different or similar. In reality, their ideas were quite similar in looking at differentiated product markets.

• Their work was important in updating economic theory to account for the variety of new products that firms were producing to meet consumer demands, as economies advanced in the early 20th century.

• Early economic theories focused on extremes of perfect competition and monopoly. Perfect competition assumes many small firms and identical products, while monopoly assumes a single dominating firm.

• Robinson and Chamberlin developed the theory of monopolistic competition to better reflect real-world markets that fell between these extremes. They recognized that while multiple brands exist in industries, they are often differentiated to an extent.

• Their theory showed how firms could gain some monopolistic power through product differentiation, branding, and advertising. This created imperfect competition where firms were neither pure monopolists nor perfectly competitive.

• Robinson questioned many conventional economic ideas and used principles like monopsony power to argue workers should receive higher wages. However, her radical views limited her acceptance within mainstream economics.

• Later, economists focused on oligopolies with a few dominant firms whose strategic interactions were harder to model than the extremes. Game theory has since become important for analyzing oligopoly behavior.

So in summary, Robinson and Chamberlin developed the important concept of monopolistic competition to describe real-world markets that exhibited elements of both competition and differentiation between brands. This occupied an important middle ground between the extreme models of economics up to that point.

The story describes a situation in the early 1930s Soviet Union where a factory director was instructed by government officials to paint mining machines green rather than the color he intended. Failure to comply could result in imprisonment.

The Soviet Union was attempting the large-scale experiment of establishing a communist society as envisioned by Marx, replacing capitalism. This involved central economic planning by the government rather than market forces. Factories followed government production orders down to minor details rather than customer demand. Prices were also set by officials rather than market supply and demand.

Central planning aimed to rationally allocate all resources for maximum benefit, but often failed to meet targets. Shortages and starvation resulted. Mises argued central planning was inherently irrational without market prices to properly value resources and gauge demand. Supporters disagreed, believing planning could be rational through price modeling, but the system struggled with complexity. Overall it describes the tensions between central planning and market forces in the Soviet command economy during early industrialization efforts.

• Economist Thorstein Veblen criticized mainstream economic theories of his time for not considering how culture and history shape people’s desires and behaviors.

• In his influential book “The Theory of the Leisure Class”, Veblen argued that people’s consumption choices are driven more by instincts and habits formed by their social environment, rather than purely rational calculation.

• He drew parallels between modern capitalism and hunter-gatherer tribes, noting how tribal chiefs gained status by demonstrating leisure and consumption beyond subsistence needs. This “conspicuous leisure and consumption” filtered down through societies.

• Veblen saw this same instinct at play among the new American industrial rich of the Gilded Age, who bought lavish homes, clothing, and luxuries to show off their wealth and leisure without having to work productively.

• He viewed this “conspicuous consumption” as wasteful, diverting resources from useful production into displays of status, fueling an unsatisfying cycle of emulation and one-upmanship among social classes.

• Veblen’s unconventional critical views challenged mainstream ideas of rational economic behavior and highlighted the social and cultural influences underlying consumer choices and class divisions.

• In the late 1920s, the US economy was booming, but it began to slow down in a recession by the end of the decade.

• By 1933, the crisis had deepened into the Great Depression, with unemployment rising to around 25% nationwide. Millions were struggling to find work and food.

• John Maynard Keynes argued that conventional economic theories could not explain why vibrant economies could suddenly go bust. He set out to develop a new explanation.

• Keynes rejected “Say’s Law,” which held that supply creates its own demand. He argued recessions can occur if total spending falls due to people saving more of their incomes rather than spending it.

• With less spending, firms see weaker demand and make less products, laying off workers. This further reduces incomes and demand in a downward cycle.

• Keynes said governments should increase spending during recessions to plug this “leakage” from the economy. This would stimulate activity, incomes and employment until recovery takes hold.

• Keynes’ novel theories challenged prevailing orthodoxy and helped shape modern macroeconomics focused on managing aggregate demand and growth. His ideas influenced policy responses to later economic downturns.

• Joseph Schumpeter saw entrepreneurs as the driving force of economic progress and “creative destruction” through their innovation.

• Entrepreneurs introduce new products, technologies, and production methods that disrupt existing industries and ways of doing business. This brings economic growth but also destroys some existing businesses.

• Entrepreneurs are like heroic, conqueror-like figures who aim to prove their superiority through innovation. They channel their energy into industry rather than battles.

• To innovate, entrepreneurs need funding, which they obtain through bank loans. This shows the important role of money and credit in fueling innovation and economic change.

• Successful entrepreneurs get rich by introducing popular new goods and technologies that are then widely adopted. This allows entire industries and the economy to grow.

• Over time, competitors copy the innovations, industries expand and contract, leading to boom and bust cycles as the economy goes through successive waves of creative destruction driven by entrepreneurs.

So in summary, Schumpeter saw entrepreneurs as the agents of innovation that drive long-term economic progress but also short-term instability through the process of creative destruction. Bank funding is key to fueling their innovative activities.

• Joseph Schumpeter argued that capitalist economies undergo cyclical booms and busts driven by waves of innovation from entrepreneurs. New technologies disrupt existing industries and companies, a process he called “creative destruction.”

• Unlike other economists, Schumpeter believed monopolies could stimulate innovation by allowing companies to earn high profits from new inventions, encouraging risky entrepreneurship. Monopolies help propel technological progress.

• Schumpeter saw capitalism as constantly changing, not in equilibrium like other economists viewed it. Entrepreneurs drive disruptive waves of change and growth.

• However, Schumpeter argued that capitalism would not survive in the long run. As firms grew larger and more bureaucratic, innovation shifted from daring entrepreneurs to rational corporate planning.

• This would make capitalism increasingly boring and stifle the entrepreneurial spirit. Intellectuals would grow disillusioned with business and capitalism, paving the way for socialism instead.

• While his prediction of socialism was wrong, Schumpeter highlighted how capitalism remains in constant flux driven by entrepreneurial disruption and technological innovation. He positioned himself as both a defender and critic of capitalism.

In his spare time, John von Neumann started laying the foundations of the field of game theory. Some key points:

• Von Neumann pioneered early work on game theory by developing methods to analyze situations where players could negotiate and make binding agreements.

• However, his methods did not apply to contexts like adversaries in war who could not negotiate or make promises to each other.

• While a student at Princeton, John Nash came up with a breakthrough idea for analyzing games where players do not stick to promises. He discussed it with von Neumann, though von Neumann dismissed it as trivial at the time.

• Nash’s idea, known as a Nash equilibrium, became extremely influential. It analyzed games by finding the outcome where each player takes the best action given what the other player does, such that no player wants to change their action.

• This provided a way to analyze many types of strategic interactions and helped establish game theory as a new field, building on von Neumann’s earlier pioneering work. Nash’s work marked an important development in the early evolution of game theory.

During World War 2, two famous economists, John Maynard Keynes and Friedrich Hayek, were neighbors living in Cambridge after their school was evacuated from London. They had very different views on the role of government in the economy.

Hayek warned that increased government control of the economy in countries like Britain could eventually lead to totalitarianism, like in Nazi Germany. He argued that government intervention can restrict individual freedom of choice and lead to tyranny if taken to an extreme.

During the war, many people believed the government should play a larger role in managing the economy and society after the war ended. A popular report called the Beveridge Report outlined a vision for a welfare state with social security, public services, and policies to reduce unemployment.

Hayek disagreed with this “mixed economy” model and expanding the government’s role. He argued in his influential book “The Road to Serfdom” that too much state control would undermine individual liberty and freedom of choice. While he did not predict another Hitler, he warned it could move societies closer to that.

Hayek’s ideas polarized opinion but helped shape debates about balancing government and private interests in mixed market economies after the war. His defense of individual economic freedom countered the growing popularity of greater state intervention.

• Economist Friedrich Hayek argued for free markets more than most, but said some government spending is needed for basic living standards and public goods markets can’t provide. He thought this wouldn’t threaten freedom if done sparingly.

• Ayn Rand harshly criticized Hayek’s views, seeing him as not going far enough towards free markets.

• Today most economists disagree with Hayek’s view that more government means less freedom. When government provides schooling and education, it can increase people’s freedom and ability to participate in society.

• After WWII, government spending on health and education helped disadvantaged groups in ways not seen before, allowing them more ability to shape their own lives.

• There is debate around what “freedom” truly means - Hayek saw this as a central question for economists, while others see it as more philosophical.

So in summary, the passage discusses Hayek’s views on the role of government in the economy, criticisms from Ayn Rand, disagreement from modern economists, and the debate around defining freedom.

• Economist Gary Becker broke down the divide between economic and social aspects of life. He argued that people apply economic calculations even in their personal/family lives, not just business.

• Becker used himself as an example - when deciding whether to illegally park for a meeting, he weighed the costs (fine if caught) vs benefits (making the meeting on time). This inspired his economic theory of crime.

• Becker rejected the idea that criminals are different psychologically. He saw them as rational actors making calculations like any other economic agent. Crime prevention should consider costs/benefits, like raising fines vs enforcement.

• Becker analyzed behaviors like racism using economic principles of preferences, rational choice, and trade-offs. He argued racism reflected employers’ preference to hire whites over equally qualified blacks, costing them $50 extra per white employee.

• Becker showed discrimination ultimately hurts discriminators too, as they pay more than non-racist employers. However, as blacks made up a large US population, many had no choice but to accept lower discriminatory wages.

So in summary, Becker applied economics more broadly to analyze social and personal behaviors, rejecting boundaries between economic and other spheres of life. He viewed all human action through a rational choice, cost-benefit calculus lens.

• Gary Becker applied economic theory to non-traditional topics like crime, marriage, families and child-rearing. He treated these activities like economic decisions involving costs and benefits.

• Becker argued that discrimination in the labor market leads to lower wages for minority groups. The larger the discriminated group, the more its members will end up working for low wages, as in apartheid South Africa.

• He viewed having children as an economic decision like purchasing a good. Children require large time investments which represent an “opportunity cost” in lost wages, making children more costly for higher-earning parents.

• Becker’s ideas were initially controversial but became influential. The concept of “human capital” and viewing education as an investment are now mainstream economics.

• Critics argue economics risks becoming overly abstract and neglecting real-world study of economies. Behavioral economics also challenges the rational actor model underlying much economic theory.

• However, Becker demonstrated economics can be a powerful analytical tool for studying diverse human behaviors beyond traditional markets and industries. His work expanded the realm of economic inquiry.

• Solow’s theory of economic growth argues that long-term economic growth comes from technological progress, not from simply accumulating more capital like factories and machines. Technology increases productivity by allowing more to be produced with the same amount of labor and capital.

• Technological progress allows living standards in poorer countries to eventually catch up to richer countries, similar to how a smaller child grows taller over time to approach the height of an older sibling. Poorer countries have more potential for productivity gains from technology adoption.

• After WWII, European countries like France and the UK adopted new technologies from the US like transistors and computers, fueling a period of strong economic growth that narrowed the income gap with the US. Living standards rose significantly for many in Europe and Japan during this “Golden Age” period.

• However, Solow’s theory did not fully explain where new technologies come from. Later economists like Paul Romer argued that technology is “endogenous” and produced within the economy through research and development, not just an exogenous force. This implies governments can boost growth by funding more R&D.

• While growth theory predicted poorer countries would eventually catch up, in reality many have not due to barriers to technology adoption and a lack of endogenous technological progress within their own economies. This has contributed to persistent income inequality around the world.

• The theory of demand and supply, or partial equilibrium, assumes that movements in one market are independent of others. However, in reality, changes in one market create ripples that affect many interconnected markets.

• General equilibrium theory developed by Léon Walras accounts for these interactions between markets by modeling the whole economy as a system of simultaneous equations, with supply and demand in each market depending on all prices.

• Arrow and Debreu formalized general equilibrium theory with mathematics. They proved that under certain assumptions like perfect competition and rational preferences, a general equilibrium across all markets is possible and would be Pareto efficient.

• Pareto efficiency means resources cannot be reallocated to make anyone better off without hurting someone. Arrow and Debreu’s First Welfare Theorem showed competitive equilibrium outcomes are Pareto efficient, implying markets allocate resources efficiently without waste.

• However, the assumptions required, like perfect competition, are unrealistic. Markets are actually imperfect and resource allocation by markets may not be efficient. The theory shows the importance of considering interconnections between markets rather than in isolation.

• Andre Gunder Frank developed “dependency theory” to explain how rich countries exploit poor ones through trade and investments. He argued that profits from poor countries’ exports like bananas and coffee do not go towards development, but enrich foreign companies.

• Raúl Prebisch had another theory that the terms of trade worsen for poor countries over time. As rich countries demand manufactured goods more than raw materials from poor countries, the price of imports rises faster than exports, trapping poor countries.

• Both argued poor countries should protect their industries instead of specializing in exports, unlike conventional trade theory. Frank believed only revolution could end exploitation, while Prebisch thought capitalism could help if developing correct policies.

• In Latin America, foreign companies dominated economies through plantations and mines, extracting profits. The United Fruit Company was a notorious example. Frank viewed this as modern colonialism impoverishing countries.

• Dependency theory fell out of favor but critics note rich countries have enforced unequal trade terms and intervened politically in poorer nations, especially during the Cold War to counter Soviet influence.

• Other countries like Grenada and the Dominican Republic saw political instability in the late 1970s/early 1980s, with the U.S. intervening in some cases militarily to reduce communist influence.

• However, simply claiming capitalism inherently leads to unfairness is an overstatement, according to the passage. It cites the success of Asian Tiger economies like South Korea, Taiwan, Singapore, and Hong Kong in transforming from poor to industrialized nations through trade and economic development, not impoverishment. This shows poor countries can get richer within a capitalist system.

• Today, China is also cited as another example of replicating the Asian Tigers’ success in rapid economic development and diversification through participation in global trade networks rather than being harmed by them.

• Keynesian economics after WWII saw governments taking a major role in stabilizing the economy through spending and redistribution policies. Economists assumed governments were capable of designing and implementing the correct policies.

• James Buchanan challenged this view through his work on “public choice” economics. He argued politicians and officials act in their own self-interest, not purely for the public good as economists assumed.

• Buchanan was influenced by the writings of Swedish economist Knut Wicksell, who rejected the notion that governments act completely unselfishly.

• Buchanan said economists were inconsistent - they viewed individuals as self-interested but assumed politicians transformed into unselfish “political men” once in office.

• His public choice theory analyzed governments and politics like businesses, with self-interested actors. Politicians’ main goal is staying in office, not optimal policy outcomes.

• This provided a new lens for viewing increased post-war government spending and intervention - as more about self-interest than helping markets. It shattered the image of virtuous politicians only concerned with society’s welfare.

So in summary, Buchanan challenged Keynesian assumptions by arguing politicians are self-interested like everyone else, not unbiased implementers of good policies as economists had theorized. This gave a new skeptical perspective on government growth.

• Politicians seek to hold on to power by creating “rents” - revenues above what could be earned in a competitive market. They do this by granting special privileges to groups in exchange for political support.

• This incentive of extra profits with little effort encourages “rent-seeking” behavior, where businesses lobby the government for protections and privileges.

• Rent-seeking hurts consumers by reducing competition. Producers are more motivated to engage in it since they stand to benefit individually, unlike scattered consumers.

• Public choice theory views lobbying groups not as representing varied interests but as rent-seekers who waste resources.

• Governments are also prone to expand their scope and budgets due to the self-interest of bureaucrats and politicians wanting more power, status, and reelection. Spending tends to rise indefinitely.

• Buchanan advocated for constitutional rules like a balanced budget requirement to constrain government behavior and reduce rent-seeking.

• Critics argue public choice theory exaggerates self-interest and fails to consider other motivations like helping causes or acting in different roles. Governments also fulfill vital functions in modern societies.

In summary, it discusses how the incentives of politics and government can lead to rent-seeking behavior as politicians and bureacrats act in their self-interest, and Buchanan’s advocacy for constitutional constraints in response.

• The passage uses a hypothetical example of an island economy with 10 pineapple sellers to illustrate Milton Friedman’s monetarist economic theory.

• It shows how doubling the money supply from $5 to $10 would double national income from $10 to $20, as long as the velocity of money circulation (how frequently each dollar is spent) remains stable.

• Friedman believed velocity is generally stable, so changes in the money supply can have meaningful effects on national income in the short run by increasing spending and production.

• However, in the long run the only effect of increased money is higher prices/inflation, as employment returns to the “natural” level determined by actual productive capacity.

• Attempts to sustain higher employment just lead to ever-increasing inflation, as workers realize their higher money wages don’t translate to higher real wages.

• Friedman argued the government should target a fixed, steady growth in the money supply to avoid these boom-bust cycles and instead have stable, low inflation growth.

• Thatcher and Reagan aimed to control inflation by controlling money supply, though it took time and the recession was worse, but Friedman’s ideas of limited government interference remained influential.

• The idea of rational expectations was proposed by American economist John Muth in a 1961 paper. It argued that people make predictions based on all available information, rather than just past data.

• Eugene Fama explored the implications for financial markets. He showed that share price patterns could not be predicted if investors had rational expectations, as any information would already be reflected in prices.

• This became known as the “efficient market hypothesis” - prices reflect all available information so there are no profitable investing opportunities. Changes result from random factors, not predictable trends.

• Robert Lucas applied rational expectations to macroeconomics. He argued governments could not boost employment as workers and firms would anticipate policy effects like inflation. Markets quickly clear through price adjustments.

• This challenged Keynesian ideas of situations like unemployment. But critics question if markets truly adjust so quickly and if people can realistically process vast information. Events like recessions and financial crises cast doubt on perfectly rational expectations and market efficiency.

Here is a summary of the key points about currency speculation according to the passage:

• Currency speculation took off in the 1970s as banks started speculating in various financial markets. George Soros founded a hedge fund dedicated to speculation.

• Speculators make money by trading currencies and betting on exchange rate movements. Pegged currencies provide opportunities as speculators can “attack” pegs when countries’ policies threaten the peg.

• Paul Krugman theorized that speculators attack pegs when governments overspend and print too much money, depleting foreign currency reserves. Speculators sell the currency before the peg breaks.

• Countries can also face crises even without overspending, as speculators may lose faith in a peg’s viability. Britain experienced a crisis in 1992 when speculators attacked the pound’s peg to the deutschmark.

• Views are mixed on speculation - some see it as responding to economic realities, while others blamed speculators for economic disasters in Asian countries in the late 1990s. The passage discusses debates between Soros and the Malaysian prime minister on this issue.

In summary, the passage outlines how currency speculation works and the role of speculators in triggering crises for countries with pegged exchange rates according to economic theories. It also discusses debates around the impact of speculation.

• The economic crisis in Thailand spread to other Southeast Asian countries like Malaysia, South Korea, and Indonesia. This process is known as economic “contagion”, similar to how diseases spread between people.

• When speculators saw what happened in Thailand, they started worrying the same thing could happen elsewhere in the region. This caused them to sell currencies in other countries to protect themselves, even if those economies were fundamentally sound.

• As more speculators sold currencies to hedge against potential problems, it became a self-fulfilling prophecy - the sales of currencies contributed to the economic crises in those countries even if the underlying economies were strong.

• Economists argue this was an unnecessary panic driven by speculators rather than real issues in the economies. The spread of the crisis was driven more by speculation than economic fundamentals. This angered leaders like Mahathir Mohamad of Malaysia who felt their countries were unfairly targeted.

So in summary, the Thailand crisis spread to nearby economies through the actions of speculators who anticipated problems elsewhere based on what happened in Thailand, even if those other economies were strong. This speculation became a self-fulfilling crisis rather than being based on real weaknesses in the regional economies.

Here are the key points Sen raised in his mind about the famine in Bengal:

• If famines were caused by too little food, then why did people starve in front of well-stocked food shops? This contradicted the conventional explanation of famines being caused by lack of overall food availability.

• Why didn’t the famine affect his well-off friends and relatives? This suggested that lack of income/purchasing power, rather than lack of food, was a major cause of starvation.

• Sen developed the concept of “entitlements” to explain famines. People starve not because there is no food, but because they lack the necessary entitlements like income, employment opportunities, etc. to be able to afford food.

• Fluctuations in markets and prices can disrupt people’s entitlements and cause famines even when overall food production remains high. For example, rising food prices due to floods or speculation can put food out of reach of the poor.

• Protecting people’s entitlements through policies like employment programs can help avert famines even during crises like droughts. For example, Maharashtra averted famine through such programs despite a drought.

So in summary, Sen questioned the conventional view that famines are solely caused by lack of food availability. He argued income/purchasing power issues and disruptions to people’s entitlements are also major contributing factors.

• Economists Finn Kydland and Edward Prescott studied the problem of time inconsistency - when what is best to do now differs from what was intended in the future due to changes in incentives over time.

• They used the example of teachers threatening detention to students if homework isn’t submitted, but then not following through on the threat in order to go home earlier. Students know the teachers won’t follow through, so they don’t do the homework.

• Controlling rockets doesn’t have this problem, as the instructions can be pre-programmed and won’t change based on future incentives. But with people, their rational expectations of future changes in incentives affect their current behavior.

• Kydland and Prescott argued this challenges the Keynesian view that governments can easily control the economy through policy, since people anticipate and factor in future policy changes rather than simply reacting to current policy settings.

• They helped develop the rational expectations theory which assumes people make predictions about future economic conditions and policies based on all available information, including expectations of how incentives may change over time. This leads to the problem of time inconsistency.

Teachers and governments face a tricky game in trying to manage people’s expectations and behaviors over time. While games against nature are relatively straightforward, games against crafty humans present additional challenges due to rational expectations and time inconsistency problems.

Keynesian policies attempted to reduce unemployment by modestly increasing inflation through fiscal and monetary stimulus. However, rational expectation theorists argued this was futile, as people would foresee higher prices negating real wage gains, limiting employment impacts.

Still, governments are tempted to try stimulus near elections to gain popularity, even if they promise low inflation annually. Short-term surges work occasionally but raise long-run inflation without reducing unemployment. Broken promises undermine credibility, destabilizing the economy.

Kydland and Prescott showed discretion exacerbates this, recommending predetermined policy rules. But governments lack enforcement power and will break own rules. Central bank independence was proposed as a solution, removing monetary policy from political manipulation. Many countries adopted this in the 1990s, and it was believed to contribute to lower inflation and steadier growth. However, the causes and durability of this moderation remain debated.

• Traditional economics tends to view the world through a male perspective and leaves out the experiences of women. Women are disadvantaged in how economic resources are distributed.

• One common narrative is the “benevolent patriarch” - the household led by a kind male provider. But this ignores issues like unequal treatment of girls within families.

• Women’s unpaid labor like childcare, cooking, cleaning is overlooked. It constitutes a significant portion of economic activity but is not captured in GDP. Feminist economists argue it should be measured and valued.

• The notion of “free choice” assumes people freely choose jobs, studies based on preferences. But discrimination can limit choices, especially for women. Comparisons of welfare between groups are also seen as meaningful by feminist economists.

• Alternative frameworks proposed include focusing on how well an economy provides basic needs rather than maximizing choices. Improving conditions for women, like education access, can help address issues like “missing women” in some societies.

• Feminist economists critique explanations for gender pay gaps that assume differences stem purely from individual choices rather than societal influences. They argue economics needs to consider broader social and emotional factors.

The psychologist Daniel Kahneman studied how mental biases influence perception and decision-making. One bias is that people perceive gains and losses differently - they dislike losses more than they like equivalent gains. This “loss aversion” can affect economic choices.

Kahneman and Amos Tversky found that people value things more once they own them. In an experiment, people demanded more to give up a mug they owned compared to what they would pay to acquire a similar mug. This is because people see non-ownership as a loss compared to their reference point of owning the mug.

Reference points and framing of choices can also skew decisions. People preferred a health program described as saving 200 lives over one where 400 people died, even though the outcomes were the same.

Additionally, people are poor at assessing probabilities. They incorrectly thought it was more likely that someone with artistic interests would be a “bank clerk who plays saxophone in a band” rather than simply a “bank clerk”. This shows biases can influence judgments of uncertainty.

Behavioral economics explores how these mental biases, rather than strict rationality, govern many economic decisions. It provides insights into phenomena like runaway asset price bubbles where mass psychology, rather than fundamentals, drives market movements.

• Investors poured a lot of money into technology companies during the 1990s dot-com bubble based on excitement about new technologies, but without properly assessing the true value and viability of these companies.

• This led to many unsound companies receiving funding that they did not deserve based on their actual business prospects. Many of these companies later failed when the bubble burst.

• Similar bubbles have occurred throughout history, such as the 17th century Dutch tulip mania and 18th century British bubbles around speculative business schemes. When the bubbles popped, they wiped out many investors’ fortunes.

• The 2000s tech bubble collapse had widespread economic impacts, with $2 trillion in wealth disappearing as stock prices crashed and many new companies going out of business. However, new bubbles formed, such as the housing bubble that eventually caused major financial crisis when it burst.

• Economist Hyman Minsky believed capitalism is inherently unstable and prone to financial crises, contrary to mainstream thinking at the time.

• Minsky said financial systems transition from cautious lending to speculative lending to reckless “Ponzi finance” as booms progress, with banks lending increasingly to borrowers unable to repay.

• In cautious lending, banks carefully assess borrowers’ ability to repay. In speculative lending, they offer interest-only loans assuming prices won’t fall. In Ponzi finance, they offer loans where borrowers don’t pay interest or principal, relying on ever-rising prices.

• This creates bubbles as lending sustains rising prices which justify more lending in a self-reinforcing spiral. Minsky saw this dynamic leading inevitably to crisis when the bubble bursts.

• His views better anticipated the 2008 crisis than mainstream economists. Rising housing prices and lax subprime lending fit his theory of the financial system moving from caution to speculation to recklessness over time.

So in summary, Minsky argued capitalism is inherently unstable due to this progression in risk-taking within financial systems, ultimately leading to crisis - an unorthodox view that was prescient regarding the 2008 global collapse.

• Minsky argued that financial innovations like securitization helped cause excessive speculation and “Ponzi finance” leading up to the financial crisis.

• Securitization involved packaging housing loans into complex securities that were sold to investors. This reduced oversight of underlying loan quality since the originators offloaded the loans.

• When the housing bubble burst, many subprime borrowers defaulted, causing losses for those who invested in the securities without fully understanding their risk.

• As defaults rose, lenders stopped lending to each other due to uncertainty, exacerbating the crisis. The crisis led to a deep recession as construction and spending declined sharply.

• In response, governments pursued Keynesian stimulus policies but then shifted to austerity too soon, according to some economists. This made the downturn worse, especially in Greece where austerity led to high unemployment and poverty.

• Overall, Minsky argued that decades of increasingly reckless finance-based capitalism, fueled by deregulation, helped sow the seeds for the crisis and long recession. It took a long time for the system to evolve from its more cautious origins.

• Thomas Piketty argues that wealth inequality is driven more by the rate of return on capital exceeding the overall economic growth rate (r > g), rather than just differences in productivity or skills.

• High earners’ productivity is difficult to precisely measure, unlike manual labor. Their pay tends to be determined more by company customs and pay scales.

• Wealth refers to assets like houses, businesses, shares, and land that generate income, separately from earned income. Wealth begets more wealth when returns exceed growth.

• Governments can influence inequality through tax policy, spending decisions, and technological choices that impact employment and returns. Extreme inequality may threaten efficiency by reducing opportunities and investment in education/health.

• While markets can be efficient, they are not the sole determinant of outcomes. Government policy choices impact inequality through tax rates, public services, and technology development, showing inequality is partly within societies’ control.

• Economists disagree on the proper balance between equality and efficiency. Moderate redistribution may not necessarily reduce efficiency or incentives to work. Inequality is a policy issue as much as an economic one.

The passage discusses both the successes and failures of economics. It notes that economics has helped solve specific problems like matching kidney donors and auctioning mobile phone licenses. However, economists failed to predict the recent financial crisis, and their push for free markets in places like Africa in the 1980s and Russia in the 1990s had disastrous results.

The passage then focuses on how economics can help address global warming. It explains the concept of carbon emissions as an “externality” and how economic tools like carbon taxes or trading permits can help lower emissions in a cost-effective way. However, fully solving global warming will require international cooperation.

While basic economic principles are useful, they leave out broader social and political factors. And if pushed too far, theories of free markets and rationality can distort reality. Economics courses also tend to ignore dissenting thinkers. Overall, economics must grapple with fundamental questions about how to improve human well-being - it’s not just about costs and benefits but the big issues societies face. The appropriate economic response changes over time based on problems of the era.

• Om is often said as a mantra or chant during meditation practices in Hinduism, Buddhism, and Jainism. It represents the eternal or infinite nature of Brahman (the highest Universal Principle) in Hinduism.

• In Hinduism, Om is considered a sacred sound that contains all other possible sounds and which when uttered aloud or inwardly helps focus the mind on meditation. It is made up of three sounds - A (for creation), U (for preservation), and M (for liberation).

• When chanted either silently or aloud, Om is believed to help the mind and body relax and attune itself to deeper or higher frequencies conducive to meditation. Its vibrations are said to resonate at a high frequency associated with spiritual illumination.

• Repeating Om during meditation is seen as focusing the mind, heart, and whole being on the infinite reality of Brahman. It represents the four states of consciousness - waking, dreaming, dreamless sleep, and transcendental.

• The repetition of Om is thought to gradually lead meditators from gross to subtle to causal consciousness and finally to unity or oneness with Brahman. It helps take one’s awareness beyond the mind and ego into pure consciousness or enlightenment.

So in summary, Om is a sacred mantra consistently repeated during meditation practices in Eastern religions to help focus the mind, relax the body, vibrate at a higher frequency, and ultimately lead one to spiritual illumination or unity with the supreme cosmic principle.

Here are summaries for the terms you requested:

(i) organ transplant - The surgical removal and implantation of organs and/or tissues from a donor to a recipient as a means of replacing an absent or damaged bodily function.

(i) output per person - A measure of economic productivity calculated as total output or GDP divided by the total population. Used to compare the average production levels between countries and over time.

(i) Owen, Robert - A utopian socialist theorist and reformer who established cooperative communities in Britain and the United States in the early 19th century.

(i), (ii) paper money - Currency notes or bills that are not backed by a valuable commodity like gold but instead derive their value from government regulation and law.

(i) Pareto, Vilfredo - An Italian economist who developed the concept of Pareto efficiency, the idea that an allocation of resources is efficient if no one can be made better off without making someone else worse off.

(i), (ii) pareto efficiency - See Pareto, Vilfredo above.

(i) pareto improvement - A change to the allocation of resources that makes at least one person better off without making anyone else worse off, thus resulting in a more efficient or optimal outcome.

(i) Park Chung-hee - Military strongman who ruled South Korea from 1961 to 1979, pursuing economic policies like import substitution and export promotion that resulted in rapid industrialization and economic growth.

(i) partial equilibrium - The analysis of policy or behavioral changes in specific markets in isolation, holding everything else constant, as opposed to general equilibrium which considers economy-wide interactions.

(i) pegged exchange rate - When a country’s currency is fixed or tied to another major currency at a set exchange rate rather than floating freely.

(i), (ii), (iii), (iv), (v) perfect competition - A market structure with a large number of small producers and consumers, where products are perfect substitutes and no individual participant can influence price. Leads to economically efficient allocation of resources.

(i) perfect information - The assumption in some economic models that all market participants have complete and equal knowledge of prices, product characteristics, future opportunities, etc.

(i) periphery - In dependency theory, developing nations and their dependent relationship supplying raw materials to richer “core” nations controlling international trade and capital flows.

(i) phalansteries - Utopian communal living arrangements advocated by French social theorist Charles Fourier, characterized by joint working, education and living.

(i) Phillips, Bill - A New Zealand economist who in 1958 published work on an empirical inverse relationship between unemployment and inflation in the UK, now known as the Phillips curve.

(i), (ii), (iii), (iv), (v), (vi), (vii) Phillips curve - Represents the short-run observed trade-off between inflation and unemployment, such that inflation increases when unemployment decreases and vice versa. Has been challenged by stagflation and rational expectations theory.

(i), (ii) physiocracy - An 18th century French school of thought led by François Quesnay that viewed agriculture as the sole source of wealth. Advocated laissez-faire policies and minimal government intervention.

(i), (ii), (iii) Pigou, Arthur Cecil - A British economist influential in the development of welfare economics who advocated government intervention to offset externalities through taxes and subsidies.

(i), (ii), (iii) Piketty, Thomas - A contemporary French economist who in Capital in the Twenty-First Century argues wealth inequality will increase over time if the private rate of return on capital exceeds the rate of economic growth.

(i), (ii), (iii) Plato - Ancient Greek philosopher who wrote extensively on politics, statesmanship and justice in works like The Republic. Advocated rule by an elite class of “philosopher-kings”.

(i) policy discretion - Government’s ability to actively pursue countercyclical macroeconomic policies rather than passive responses to economic conditions. Reduced under new classical/rational expectations macro theories.

(i) Ponzi, Charles - An Italian swindler whose eponymous Ponzi scheme involves using money from new investors to pay fake returns to earlier investors to continue attracting funds, promising returns that are too good to be legitimate.

(i) Ponzi finance - Any type of fraud scheme where short-term returns are paid to initial investors using funds from new investors rather than actual profits, enabling the perpetuation of the scam before its inevitable collapse.

(i), (ii), (iii) poverty - See specifically Sen on poverty below

(i) in Cuba - Cuba achieved universal access to education and healthcare despite US sanctions, though at the cost of civil liberties and limitations on political dissent. Poverty dropped dramatically.

(i) Sen on poverty - Indian economist Amartya Sen emphasized poverty as a capability deprivation rather than just low income. Expanding freedoms and opportunities is central to poverty alleviation.

(i) and utopian thinkers - Early thinkers like Fourier and Owen proposed communal living arrangements intended to overcome poverty through cooperation and sharing of property.

(i) Prebisch, Raúl - Argentine economist influential in developing dependency theory in Latin America to explain underdevelopment in terms of unequal terms of trade benefiting rich nations.

(i) predicting - Economics aims to understand and explain economic phenomena but predicting the future with precision is challenging due to many unpredictable variables.

(i), (ii) Prescott, Edward - American economist who with Finn Kydland developed and formalized time inconsistency and credibility problems in rational expectations theory, related to dynamic policymaking.

(i), (ii) price wars - Periods of intense competition between firms where prices are dramatically lowered, sometimes below costs, in hopes of attracting more customers and pushing competitors out of the market. Can destabilize markets.

(i) primary products - Raw or minimally processed goods that make up the bulk of exports from developing countries, including agricultural and mineral products vulnerable to price volatility.

(i) prisoners’ dilemma - A game theory scenario where two individual players may choose to cooperate or defect, and the optimal choice for each depends on the other’s, exhibiting conflict between self-interest and collective interest.

(i) private costs and benefits - Costs or benefits that directly impact an individual firm or household undertaking an action, as opposed to external/social costs and benefits affecting society more broadly. Figures into decisions in free markets.

(i) privatisation - Transferring ownership of state-controlled assets, industries or public services to private control through mechanisms like share offerings or auctions. Aimed to boost efficiency.

(i), (ii), (iii) productivity - A measure of output per unit of inputs, commonly specifically labor productivity calculated as output per hour worked. Improving productivity drives long-run growth and economic development.

(i), (ii), (iii), (iv) profit - The return earned by business owners or shareholders, calculated as total revenue minus total costs. A key motive and guide for capitalist/market behavior according to classical and neoclassical economics.

(i), (ii) and capitalism - Profit provides motive and incentives central to capitalism, though critics dispute capitalist endeavors are primarily driven by true entrepreneurship or risk-taking rather than desire for rents.

(i), (ii) proletariat - The property-less working class who must sell their labor under capitalism and were predicted by Marx to rise up and overthrow bourgeois social relations in a communist revolution.

(i), (ii), (iii), (iv), (v) property (private) - Private ownership over assets or means of production, especially land. Private property rights are considered essential to capitalism and market economies by most economists but criticized by socialists.

(i), (ii), (iii), (iv) and communism - Marxist-Leninist communism aimed to abolish private property and establish state or social ownership over all productive assets through proletarian revolution and a post-capitalist socialist transition phase. This arrangement was criticized for its lack of individual rights and economic inefficiency.

(i), (ii), (iii) protection - Trade policy limiting imports, including tariffs, import quotas and subsidies, aimed at shielding domestic industries and jobs from foreign competition, though often inefficient overall. Remains popular politically.

(i) provisioning - The economic activity of supplying goods, especially food, to meet the needs of the public. A central goal of early utopian thinkers and physiocrats.

(i) public choice theory - Application of economic theory to political science, assuming politicians and bureaucracies maximize utility like individuals and interest groups try influencing them, challenging idea of benevolent social planning.

(i) public goods - Goods like national defense that are both non-excludable in consumption and non-rival in usage, leading to market failure without government provision or subsidization.

(i) quantity theory of money - Asserts that inflation or deflation will result from changes in the money supply, such that rising/falling prices vary in direct proportion, all else equal, captured as MV=PY (money supply x velocity = prices x output or income).

(i) Quesnay, François - Leader of the physiocratic school of economics in 18th century France. Viewed agriculture as primary/only economic sector and advocated laissez-faire policies. Pioneered early formulation of circular flow models.

(i), (ii) Quincey, Thomas de - British author who advocated utopian socialist views including the division of property into autonomous, self-sufficient communities or “phantasies.” Influenced by utilitarianism and Jeremy Bentham.

(i) racism - Discrimination or unfair treatment based on race, often undermining equal opportunity and social or economic mobility for minorities. Can influence development when entwined with public policies and institutions.

(i) Rand, Ayn - Influential 20th century novelist and philosopher who advocated laissez-faire capitalism and ethical egoism/rational self-interest in works like The Fountainhead and Atlas Shrugged. Inspired libertarian thought in the United States.

(i), (ii) RAND Corporation - American global policy think tank initially formed to conduct military research after World War II. helped develop and apply systems analysis, game theory and other decision sciences.

(i), (ii) rate of return - Profit or yield earned per monetary unit invested or production unit utilized, a central consideration in capital budgeting and investment decisions according to neoclassical and Austrian economics theory.

(i), (ii), (iii), (iv), (v) rational economic man - The hypothetical utility-maximizing agent assumed in neoclassical economics, making fully rational choices with perfect information. Critiqued as unrealistic by behavioral economists.

(i), (ii), (iii), (iv), (v) rational expectations - Assumption in new classical macroeconomics that agents account for economic relationships and form expectations of the future without systematic error on average. Implies monetary policy loses effectiveness.

(i) real wages - Wage levels accounting for inflation, indicating wage-earners’ actual purchasing power in the economy rather than just nominal dollar amounts. Important to living standards.

(i) recession - A period of declining economic output, falling employment rates and reduced corporate investment lasting at least 6 months. Traditional Keynesian view prescribes expansionary policy to lift activity.

(i), (ii), (iii) and governments - While recessions cannot always be avoided, policy decisions around spending, revenues and regulations have major impacts on magnitude, length and cost of downturns according to mainstream macroeconomics.

(i) Great Recession - Severe global recession from late 2007 to mid-2009 that followed the housing crisis and financial crisis, characterized by large output drops, high unemployment and unprecedented policy responses.

(i), (ii) Keynes on recession - According to Keynesian macroeconomics, recessions are fueled by inadequate private spending/demand and can be reversed through countercyclical government spending to prime the economic pump.

(i) Mexican - Mexico suffered a severe recession with GDP dropping over 6% in 1982 amid peso crisis and debt default, but recovered strongly with structural reforms and privatizations under stabilized conditions.

(i) redistribution of wealth - Attempting to correct inequality after-the-fact through taxation and transfer payments rather than pre-distribution market outcomes alone, as advocated by some economists to address social justice concerns. Controversial politically.

(i) reference points - Points psychologically used to evaluate gains and losses, like the status quo or aspirations, that can influence risk preferences according to prospect theory in behavioral economics.

(i) relative poverty - Poverty measured in terms of inequality and relative deprivation within a population rather than just minimum living standards, emphasizing social and economic participation according to some theorists like Townsend.

(i) rent on land - Income earned specifically by landlords through ownership of natural properties like agricultural estates, due to their scarcity. A key concept for classical economists David Ricardo and Thomas Malthus.

(i) rents/rent-seeking - Earning money not through productive contributions but by manipulating the economic/political environment, such as lobbying for subsidies, tariffs or licensure to restrict competition. Inefficient according to public choice theory.

(i), (ii) resources - Factors of production like land, labor, capital and entrepreneurship that are utilized to generate goods and services. Scarcity of resources requires allocation between competing uses.

(i) revolution - A drastic and wide-reaching change in power or organizational structures that transcends incremental or evolutionary reform, such as through mass protests, civil unrest or violence as seen in France 1789 or Russia 1917.

(i) Cuban - The 1959 revolution led by Fidel Castro overthrew the US-backed authoritarian government and transformed Cuba into a communist state officially atheist and aligned with the Soviet Union.

(i), (ii), (iii), (iv) French - The 1789 revolution marked a radical political and economic transformation as the French monarchy was overthrown, new institutions of liberal democracy and capitalism were established during changing phases.

(i), (ii) Russian - The October 1917 revolution established Soviet power and ended Russian participation in World War I, inaugurating over 70 years of communist rule by the Bolsheviks under Lenin and later Stalin with a command economy.

(i), (ii), (iii) Ricardo, David - A highly influential early 19th century British economist who formulated the law of comparative advantage justifying free trade and analyzed factor distributions through economic rent and the tendency of profits to fall with growth.

(i) risk aversion - The attribute of preferring a certain, known outcome to an option with the same expected value but higher variance or uncertainty, as modeled in modern portfolio theory and standard expected utility maximization. Important for finance and insurance.

(i) Road to Serfdom, The (Hayek) - A 1944 book by Austrian economist Friedrich Hayek arguing that centralized control of economic decision-making necessarily leads to reductions in individual and political freedoms and risks developing totalitarian tendencies unless democratic restraints on government are exercised.

(i) robber barons - Epithet used especially in the late 19th century for post-Civil War US industrial entrepreneurs like Rockefeller and Carnegie who were very successful but also accused of aggressive business practices contributing to inequality.

(i) Robbins, Lionel - British neoclassical economist who in his 1932 text An Essay on the Nature and Significance of Economic Science established economics as a science distinct from ethics, based on axiomatic thinking and backed by inductive evidence rather than moral arguments.

(i) Robinson, Joan - A British economist at Cambridge and author of theoretical works critiquing mainstream assumptions, arguing for alternative economic paradigms that assume imperfect and insufficient competition.

(i) Roman Empire - Lasted over a thousand years but eventually collapsed under the weight of overextension, military overspending, inflation, overreliance on slave labor, and the failure to adapt in the face of external economic or demographic threats. Provides historical lessons.

(i) Romer, Paul - Leading macroeconomist who with Robert Lucas incorporated endogenous technological progress and human capital into neoclassical growth models, emphasizing research investments and education as key determinants of long-run growth.

(i) Rosenstein-Rodan, Paul - Development economist who promoted “big push” industrialization strategies for poor countries, arguing coordinated investments were needed across multiple sectors to achieve economies of scale and kick-start self-sustaining growth.

(i), (ii) Roth, Alvin - American economist and game theorist who received the Nobel Memorial Prize for inventing the concept of stable matching that greatly impacted medicine and other industries requiring stable one-to-one matching.

(i) rule by nature - Natural laws of physics, evolution or other forces determine social and economic outcomes rather than human reason, choice or political/economic institutions according to early thought systems. Questioned by utilitarianism and democratic philosophy valuing freedom.

(i) rules of the game - Institutions, both formal regulations and informal norms, that structure economic and political incentives within a society according to Douglass North. Rules guide how people interact rather than dictating outcomes directly.

(i) Sachs, Jeffrey - Economist who advised governments on “shock therapy” structural adjustment reforms in Latin America, former Soviet states and elsewhere in the 1990s advocating rapid deregulation and privatization to induce transition.

(i) Saint-Simon, Henri de - French philosopher and early socialist thinker who advocated replacing capitalism with an industrial-based meritocratic system where scientists and engineers would manage the economy according to long-term plans for the benefit of all of society.

(i), (ii) Samuelson, Paul - Nobel Prize-winning American economist who in the 1940s pioneered global neoclassical synthesis integrating Keynesian macroeconomics and microeconomics into a comprehensive theoretical framework still guiding policymaking today.

(i), (ii) savings - Postponing consumption to build up a stock of retained earnings, bank deposits or other accumulated assets that can be used later for investment, increasing the capital stock per capita. Plays a key role in economic growth theory.

(i) and Say’s Law - According to Say’s Law, production directly becomes income, as people spend their earnings to purchase the output of others. This implies that adequate aggregate demand automatically results from adequate aggregate supply at full employment. Thus savings do not diminish total spending power in the economy and recessions cannot result from lack of demand.

(i) Say’s Law - The theory that supply creates its own demand, meaning that goods and services can only