Pre-classical school: Early Chinese Economic Thought - cheap goods are light = price fell, scare goods are

heavy = prices rose Greek Economic thought - property should be private (property rights), if the property is public it stops people from acting generously if they have nothing to give away, people feel less inclined to take care of it as they assume someone else will and there is no incentive to trade or invest. Mercantilism - nationalism through protectionism (i.e. protecting from foreign goods, zero-sum game), by restricting imports of foreign goods as it will cause gold to be lost. Bullionism, more gold = more wealth. Economy can be counted through measuring wealth. Wealthy state needs big central government, i.e. government intervention. Price flow mechanism - excess of exports over imports = more gold = increasing money supply = inflation = domestic products are expensive = raises imports - excess of imports over exports = less gold = decreasing money supply = deflation = domestic goods are cheaper = boosts exports Physiocratic school - (In France from 1756 to 1776) Wealth comes from the land, importance of agriculture as only land produces a surplus. Turgot's law of diminishing returns where the last worker adds less to the output than the first. Let the markets be, laizzez faire, i.e. less government intervention. Money flows, goods flow between economic sectors, the circular flow of the economy; which is why landowners were taxed because they collected rent and brought goods both from farmers, and this multi level buying and selling activity happens continuously = money and goods flow between producers and customers.

Classical School: Three generations Adam Smith and Hume were in the first generation. Adam Smith's main work was an inquiry into the wealth of nations; where he said that the key to success of a nation was the division of labour i.e. specialization and capital accumulation. Smith's law of accumulation was that capitalists should save for capital accumulation but the problem was that accumulation couldn't always lead to further accumulation. E.g. accumulation = more machinery = more demand for workers = higher wages = decrease in profits until there is no accumulation. Smith's law of population - as more labour is needed wages will increase = more people wanting to work = prosperous nation lowers infant mortality = population increases in LT and wages will decrease as the supply of labour grows Invisible hand = supply high (glut) then prices low, supply low then prices high, this showed that the firms acted in self interest which guided the economy. Firms wanted competition for sales = lower prices Firms self interest leads to consumer happiness. State efforts to promote social good are ineffectual compared to uncontrolled market forces. Competition = pursuit of self interest = social harmony - UNLESS there are cartels formed Monopolies were dangerous Ricardo - Theory of chance value - commodities derive their exchange value not to from utility but from scarcity, relative value, and labour theory of value American protectionism Hawley-Smoot Tariff Act disabled indebted European countries to sell exports and pay off their debts

Phillips curve and NAIRU Phillips curve = negative relationship between inflation (wages) and unemployment. There was a trade off between inflation and unemployment, in the SR an increase in the rate of growth in money supply moves economy to inflation rising but unemployment declining. In the long run the Phillips curve would be vertical (Friedman). When there's stagnation (recession and inflation), the ST Phillips curve is no longer observed. Unemployment returns to natural rate (of 6). NAIRU = LT Phillips curve, there is always unemployment even at full employment (frictional, search and structural) Using monetary policy to achieve full employment will be at the expensive of inflation