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Power Economics and Management

2nd Semester, 3rd Year (13EL) Introduction to Economics…

B.E Electrical Engg. Program  History Thought of Economics
 Various Forms of Economic
Nayyar Hussain  Father of Economics
Assistant Professor

Lecture No. 3
Department of Electrical Engineering
Mehran University f Engg. & Technology,
Jamshoro

The Economic Thought back to Ancient Times A Short History of the Economy

Hunter-gatherer societies
The earliest discussions of economics date back to


No surplus.
ancient times.

 Very flat social structure.
 Slavery
 Economics was not a separate discipline, but part of  Permanent agriculture allowed for a surplus to exist.
philosophy.  This opened a social conflict over who controls it.
 Class divisions appear within society.
Feudalism
In Ancient Athens, a slave based society but also


A more sophisticated, subtle class structure.
one developing an embryonic model of democracy.

 Peasants did the work, landlords collected surplus.
 Capitalism
 The Economic thought back to Ancient Greece,  Social structures evolved to match the needs of new technology
that produced much larger surplus.
Ancient India, to Ancient China.
ECON-220

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Main Periods in the History of Economics

 Pre-Classical (up to 1776).

 Classical (1776-1870s).
 The Marxist conception of Socialism as a precursor to
communism (1848-to date).
 Marginal Revolution (1870s-1890s).
 Neoclassical Economics (1890s-to date).
 Keynesian revolution (1936-1960s).
 Formalist Economics (1945 to date).

ECON-220

Plato (427-347 BC)

Early Economists

 Plato (427-347 BC)

Division of labour Currency system
 Aristotle (384-422 BC)
 Thomas Aaquinas (1225-1274)

Individual Public administration

subordinate & finance
to the state

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Aristotle (384-322 BC)

Thomas Aquinas (1225-1274)
Unnatural wealth Christian principals
True/genuine wealth
exchanging Common ground co-exist with
limited
unlimited economic life
agriculture, mining

Concerned about
Money Value in use money lending &
Morality of wealth
Measure of wealth Value in exchange unjust price charged
depended on its use
Store of value for it

The Mercantilists (1500-1780) The Physiocrats (1750-1800)

 Thomas Mun (1571-1641)
 Sir James Steuart (1712-1780
Mercantilists believed that a nation's wealth came
primarily from the accumulation of gold and silver.
Nations without mines could obtain gold and silver only by
selling more goods than they bought from abroad.
Accordingly, the leaders of those nations intervened
extensively in the market, imposing tariffs on foreign
goods to restrict import trade, and granting subsidies to
improve export prospects for domestic goods.
Mercantilism represented the elevation of commercial
interests to the level of national policy.
 Quesnay (1694-1774)
 Turgot (1727-1781)
Physiocrats, a group of 18th century French
philosophers, developed the idea of the economy as
a circular flow of income and output. They opposed
the Mercantilist policy of promoting trade at the
expense of agriculture because they believed that
agriculture was the sole source of wealth in an
economy. As a reaction against the Mercantilists'
copious trade regulations, the Physiocrats advocated
a policy of laissez-faire, which called for minimal
government interference in the economy.

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The Classical Economists
 Adam Smith (1723-1790)
 David Ricardo (1772-1823)
 Thomas Malthus (1766-1834)
 J.B. Say (1767-1832)
 J. S. Mill (1806-1873)
Adam Smith (cont.)
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Adam Smith- Father of Modern
Economics
 18th century Scottish
economist
 Published “The Wealth
of Nations” in 1776
 Explained the workings
of the free market within
capitalist economies
 Invisible hand of the
market
The Socialists
 Karl Marx (1818-1883)
 The Fabian Socialists
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Karl Marx Communism Falls

 19th century German  Market reforms in China in
economist the mid 1970s.
 Author of “Communist
Manifesto” and “ Das  Fall of the Berlin Wall in
Kapital” 1989.
 Government should control
economy and distribute  Collapse of the Soviet Union
goods and services to the 1991.
people
 Founder of revolutionary  Free Market Capitalism the
socialism and communism only show in town.

The Neo-Classical Economists Keynesian Economists

 Alfred Marshall (1842-1924)  John Maynard Keynes (1883-1946)
 J.B. Clark (1847-1938)
 Founded in 1870s as response to Marx’s critiques and
growth of socialist movements.
 Justified capitalism and the payment of profit.
 Focused analysis on individuals, not classes.
 Theory of general equilibrium, in which all markets (for
factors and products) clear.
 Faith in self-adjusting, welfare-maximizing power of
markets.
 Came to dominate economics teaching.

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John Maynard Keynes Keynesian Economics (cont.)

 The Invisible Hand  Government should intervene in economic
doesn’t always work. emergencies through tax and spending (Fiscal
Policy) and changing the money supply (Monetary
 “The long run is a Policy).
misleading guide to
This is done to smooth out the business cycle
current affairs. In the


long run we are all (expansion and recession) and keep inflation low.
dead.” or . . . the
trouble is people eat in
the short run.

The Neo-Keynesian Economists The Monetarists

 Neo-Keynesian economics is a school  Milton Friedman (1912-2009)
of macroeconomic thought that was developed in the post-
war period from the writings of John Maynard Keynes. A
It reemphasizes the critical role of monetary growth
group of economists (notably John Hicks, Franco
in determining inflation.
Modigliani, and Paul Samuelson), attempted to interpret
and formalize Keynes' writings, and to synthesize it with
the neo-classical models of economics. Their work has
become known as the neo-classical synthesis, and created
the models that formed the core ideas of neo-Keynesian
economics. These ideas dominated mainstream economics
in the post-war period, and formed the mainstream of
macroeconomic thought in the 1950s, 60s and 70s

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The Politics of Economics

 There is no objective “truth” in economics.
Economic theory has always tried to keep up with
Q & A,


changes in the economy.

 Economic debates have always reflected real-world
conflicts and struggles.
THANK YOU.
 Economics today is used to defend the system.
Joan Robinson: “The purpose of studying
economics is not to acquire a set of ready-
made answers to economic questions, but to
learn how to avoid being deceived by
economists.”