Niveles De Planeacion Didactica

Chapter 2

The Origins of Economic Theory

Independent of men’s will [. . .] far from being an arbitrary value or a value which is established by agreement between the contracting parties. (Quesnay cited in Meek 1962, p. 90) The fundamental price of commodities is determined by the expenses or costs which have to be incurred in their production or preparation. If they are sold for less thanthey have cost, their price sinks to a level at which a loss is made. If they are sold at a price which is high enough to yield a gain sufficient to encourage people to maintain or increase their production, they are at their proper price. (Quesnay cited in Meek 1962, p. 93)

2.1

Introduction

Economics as a scientific discipline originated with the emergence of capitalism, that is, the systemthat solves the problems of organisation of production and distribution through the generalised functioning of markets. Markets in capitalism do not work accidentally, occasionally or in the fringes of economic life, but at its epicentre, and they tend to encompass the operation of the entire economy. The salient feature of capitalism is the presence and the systematic operation of markets forthe factors of production and in particular the market for the services of labour activity. Capitalism was established through a long and, at the same time, slow process that started in Western Europe in the sixteenth century and gained momentum with the advent of the industrial revolution in the mid to late eighteenth century. The publication of Adam Smith’s book the Wealth of Nations in 1776 marksthe period when capitalism dominated (at least in Great Britain) and at the same time the beginning of economics as a scientific discipline. This is not to say that in the period before the industrial revolution, there was no economic thinking; on the contrary, the philosophers, theologians and social thinkers in general were constantly making policy recommendations to the authorities to deal withspecific

L. Tsoulfidis, Competing Schools of Economic Thought, DOI 10.1007/978-3-540-92693-1_2, # Springer-Verlag Berlin Heidelberg 2010

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2 The Origins of Economic Theory

economic problems.1 These policy recommendations, however – whether they were correct or not for the period that they were applied to – were not characterised by generality. The reason is that the circumstancesunder which these policies were applied did not normally (re)appear and, therefore, there were no hidden economic forces that were working beneath the surface and could be theorised. For example, the slaves in ancient Greece or Rome worked according to the dictates of their owners. The product of their labour was appropriated by the owners, who also determined the standard of living of theirslaves. Similarly, in feudalism, the serfs worked according to the dictates of tradition. The product of their labour was distributed according to the customs and also the power of the lord. Under these circumstances, non-economic forces such as political power or tradition clarified the rules of who produced what, how it was produced and who received the fruits of production. Consequently, in thesesocieties, everything was simple and plain, and there was not much that could be theorised. Social thinkers before the industrial revolution therefore dealt with economic questions without the existence of markets that operate systematically and determine the economic outcomes. Consequently, their analyses were based on the lack of competition. We know, however, that in the case of insufficientcompetition – for example, as with bilateral monopoly and isolated exchanges, in general – the equilibrium price and quantity are usually uncertain. The idea is that non-economic forces, such as the social status and the bargaining power of the traders, affect the price–quantity combination that finally prevails. This is the reason why scholastic writers of the past introduced the notion of just price...