6

Modern Economics
Learning Goals
Once you have completed this chapter, you should be able to:
• Understand the major ideas and theories of the following leading economic
thinkers: John Maynard Keynes, Joan Robinson, John Kenneth Galbraith, and
Milton Friedman
• Understand how economic thinking helps change the world in our own times
• Recognize cause-and-consequence relationships in the thinking of
contemporary economists such as Elinor Ostrom, Amartya Sen, Mark Carney,
and Dambisa Moyo
• Begin thinking like an economist by distinguishing between fact and
conjecture
• Conduct research to locate information from a variety of reliable sources to
address the evolution of economic thought, and communicate economic
information, research findings, analysis, and conclusions clearly, effectively,
and accurately
Key Terms
• school of economic thought • conjecture
• deferred savings • common resources
• imperfect competition • developmentalist
• monopsony • foreign aid
• public goods • humanitarian aid
• monetarist
John Maynard Keynes (1883-
1946)
John Maynard Keynes (1883-
1946)
• In 1936, John Maynard Keynes published The General Theory of
Employment, Interest, and Money. In it, he defended the “revolutionary”
ideas already being applied by governments in Britain, Canada, and the
United States to deal with the era of massive unemployment known as
the Great Depression.
• The approach we have come to call “Keynesian economics” analyzes
relationships among demand, production, and unemployment, and
focuses on government’s role in sustaining economic activity.
• In time, this way of thinking gained much support and led to the
formation of a distinct “Keynesian” school of economic thought.

Keynesian Economics and Deficit Spending (4:48)

John Maynard Keynes (1883-
1946)
• War and Sustainable Peace. While serving as a key economic adviser
to the British government during the Second World War, Keynes
recommended a daring plan that used “deferred savings” as the principal
means of financing the war effort.
• Deferred Savings:  A government program, used to fund a major war, where a
portion of every worker’s pay is automatically invested in government war bonds that
cannot be cashed in until the war is over; also useful for stimulating consumer
spending and production after the war. 
• Combatting the Great Depression. Keynes claimed that, since
consumers are limited in their spending by the size of their incomes,
they are not the source of depressions or any other cyclical business
shifts. Business investors and governments are the primary forces
behind business cycles.
Joan Robinson (1903-1983)
Joan Robinson (1903-1983)
• Joan Robinson was a leader in moving the Keynesian school of thought
forward. She is often referred to as a neo-Keynesian.
• Robinson experienced the Great Depression, the Second World War, and
the period of significant economic growth that followed the war. She
witnessed the unionization of workers who fought for fair treatment and
fair wages
• Before Robinson, economic thinking was a bastion of male dominance.
However, with her sound ideas and prolific writing, she made a
significant impact on the recognition of women as equal contributors.
Joan Robinson (1903-1983)
• Monopsony and Imperfect Competition: In 1933, Robinson published a
work entitled The Economics of Imperfect Competition, where she
introduced the theory of imperfect competition as a middle ground
between perfect competition and monopoly.
• Imperfect Competition:  A common market situation where competition is less than
perfect (where many buyers interact with many sellers) but still competitive (unlike
monopoly). Samples include monopolistic competition and oligopoly. 
• Monopsony: The reverse of a monopoly market, where there are many sellers
(usually workers) but only one buyer (usually an employer). 
• In 1956, Robinson published what many consider her greatest work, The
Accumulation of Capital.
John Kenneth Galbraith (1908-
2006)
John Kenneth Galbraith (1908-
2006)
• Prolific writer and gifted economist John Kenneth Galbraith has been
called one of Canada’s most notable exports to the United States.
• When Galbraith published his book The Affluent Society in 1958, he
coined the term “affluent society,” which summed up the remarkable
increase in wealth that the United States and Canada had enjoyed since
the end of the Second World War.
• Galbraith criticized government economic policies because they did not
pay enough attention to providing and maintaining public services.
• Public goods: Goods produced to serve the greater good, such as
schools, highways, hospitals, and parklands. 
Milton Friedman (1912-2006)
Milton Friedman (1912-2006)
• Whereas Galbraith is regarded as a leading proponent of the liberal
economic perspective, Milton Friedman is acknowledged as the most
articulate champion of the conservative view and free-enterprise capitalism.
• He believed that government attempts to induce cycles of economic growth
and full employment (by increasing spending and reducing taxes) resulted
in periods of significant price inflation and a steady increase in the rate of
public debt.
• According to Friedman, free markets will largely resolve their own
economic problems more effectively if they are left alone rather than
subjected to government intervention.
• Friedman is a leading member of the monetarist school of thought,
sometimes referred to as the “Chicago school.” 
• Monetarist: A school of economic thought based on the belief that the most effective
way for government to affect the economy is by regulating the money supply.
Elinor Ostrom (1933-2012)
Elinor Ostrom (1933-2012)
• In 2009, Indiana University professor Elinor Ostrom became the first
woman to be awarded the Nobel Prize in Economic Sciences.
• She received the prize for her groundbreaking research demonstrating
that common resources (such as forests, pasture lands, and fishing
waters) can be managed more effectively by the people who use them
than by governments or private companies.
• Common resources: Productive resources (such as forests, pasture lands, and fishing
waters) that are owned by no single person but are available for use by different
people.
• Her research showed that, over time, the rules and procedures
established in this manner—to care for and use “common” resources—
are more economically and ecologically sustainable in the long run. This
idea was an important breakthrough in resource management and
governance.
Amartya Sen (1933-)
Amartya Sen (1933-)
• Amartya Sen is a professor at Harvard University and the recipient of the
1998 Nobel Prize in Economic Sciences for his work in famine studies.
• Sen’s studies revealed that in many cases of famine, declining food
production is not as critical a factor as poor distribution. In Bengal (now West
Bengal and Bangladesh), for example, while food production was slightly
down from previous years, social and economic factors such as lower wages,
rising unemployment, panic buying, hoarding, and price gouging led to the
maldistribution of available food and, ultimately, to starvation. Sound like
Covid-19?
• In the area of economic development, he stressed the importance of providing
capability and opportunity equitably to all citizens. He was also influential in
the establishment of the United Nations Human Development Report, an
annual publication that ranks countries in terms of the progress they are
making on a number of economic and social indicators, such as literacy,
income, and health outcomes.
Mark Carney (1965-)
Mark Carney (1965-)
• Canadian-born Mark Joseph Carney studied economics at Harvard
University before completing his master's and doctoral degrees at the
University of Oxford.
• Back in Canada, Carney decided to give up his lucrative private-sector
work for a public-service job. He worked for the Bank of Canada
(Canada’s central bank) and the federal Department of Finance before
being appointed governor of the Bank of Canada (2008-2013).
• In the same year (2008), the global recession was triggered by the
financial meltdown of some major and reckless American banks. Under
his stewardship, and low interest rate policy, Canada was not as badly
affected by the global economic downturn, and it was one of the first
countries to recover.
• In 2013, Carney became governor of the Bank of England, just three
years before Britain’s 2016 vote to exit the European Union.
Dambisa Moyo (1969-)
Dambisa Moyo (1969-)
• Zambian-born Dambisa Moyo is an international economist specializing in
national economics, international development, and global affairs.
• In her first book, Dead Aid (2009), she argued that ongoing government-to-
government assistance has hurt African development and should be stopped
because this foreign aid has fostered dependency, encouraged corruption, and
perpetuated poverty and bad government.
• Foreign aid: Assistance and economic support given from one national government to
another to combat poverty and to facilitate economic growth. 
• Moyo’s theory draws a big distinction between humanitarian aid, which she
still sees as being essential, life-saving assistance in times of emergency
conditions like famine and drought, and foreign aid, which often helps the
economy of the contributing country more than the receiving African country.
• Humanitarian aid: Life-saving assistance from one country to another in times of
emergencies such as famine, drought, earthquakes, tsunamis, and destructive weather
storms.
 Ch6 - Activities / Homework
• Kahoot!
• Activity (Handout 6.1) - Thinking Like an Economist
• It is extremely important to engage in critical thinking that clearly separates
objective and verifiable facts (and fact patterns) from interpretations
influenced by opinion, inferences, assumptions, and other forms of
guesswork known as conjecture.
• Consolidation Activities, Communication – Question 8

**Submit responses in the Assignments tab in Teams