Korbel Foundation College, Inc.

Purok Spring, Brgy. Morales, City of Koronadal

Tel Number 877-2051/0228-1996

Chapter 2: IDEAS AND THEORIES OF

ECONOMIC DEVELOPMENT
ECON 1
ECONOMIC DEVELOPMENT

Prepared by:
JOMER M. ESPERO

KFCI-Module 2
 Learning Objectives
01 Identify:
 Ancient economic ideas
 Medieval economic thoughts
 The economic doctrines of mercantilism

02 Know the concept of:

 Physiocracy – rule of nature
 Laissez faire theory
 The classical theories
 Theory of Karl Marx

03 Recognize promotion of human values

04 Identify factors of economic development
05 Understand:
 Theory of progress and poverty
 Modern theory of employment
 Innovation theory
 Some growth models
 Ancient economic ideas- were based on the Holy Scriptures. Justice and
mercy were encourage and pursuit of excessive wealth met social disapproval.
 Plato - against the accumulation of wealth through lucrative trade or
commerce. To him, agriculture is very important, and he was in favor of
specialization of production. In his book The Republic, he said that the
members are to be educated from childhood for responsibility, and they are to
be chosen through competitive examination.
 Aristotle – great Greek philosopher, stressed the value of management of
agriculture. He was not in favor of too much wealth and usury and trade. He
disagree with Plato about communal property and claimed that this is not
feasible and that it destroys individual incentives.
 Xenophon – was in favor of capitalism. He proposed that the government
should promote trade and shipping. He considered agriculture as the basis of
wealth.
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 Medieval Economic Thoughts
 Feudalism reached its peak during the Middle Ages in Europe.
Agriculture was the source of livelihood. Powerful feudal lords lost
their influences. Ideas of cooperation developed among merchants
to protect their own interest and to attain their common objectives.
 During the latter part of the medieval period, the church became
powerful. It was an active participant not only in religious affairs but
also in political and economic activities.
 St. Thomas Aquinas - He preached distributive justice and
compensatory justice. Distributive justice refers to fair distribution of
goods among the members of society. Compensatory justice means
just wages and price.

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 The Economic Doctrines of Mercantilism
 The great thinkers of Europe, like Machiavelli, Bodin, and Serra, influenced
much the growth of capitalism.
 Wealth came from gold and silver. And a wealthy nation was considered
powerful and prestigious.
 Francis Drake – notorious English pirate specialized in capturing the ships of
other countries loaded with gold and became hero of England.
 Serra - Claimed that manufactured products could be sold readily abroad than
agricultural products. He further stated that agricultural goods are perishable
and bulky, and he mentioned other limitations, like limited areas of land and
the great dependence of agriculture on the weather conditions.
 Thomas Mun – he contributed the idea of balance payment. He explained that
foreign trade is favorable if exports are greater than imports.

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 Physiocracy – Rule of Nature
 18th century – the Enlightenment of England and France.
 People concluded that it was not the will of God that created the conditions in the
world and God’s will was expressed in the natural law. Philosophers claimed that
people are poor because they violate the laws of nature.
Wealth came from land
 Physiocracy – means rule of nature. They stressed the importance of agriculture
because they claimed all wealth came from land. Farmers are the real producers and
the backbone of the whole national economy.
Laissez Faire Theory
 It is a French term, connotes non-interference, liberty or freedom. It means the
government should not intervene in economic affairs (natural law).
 Quesnay - The leader of the Physiocrats, stated that prices of manufactured goods
are higher than the prices of their raw materials.

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 The Classical Theories
Adam Smith - Explained in his economics book “Wealth of Nations”,
how the wealth of a nation is increased, and the manner of its distribution.
Under a free market economy, Smith claimed that production would be
most efficient. Through free competition, only the best producers survive.
Thomas Malthus – author of population theory, stated that population
explosion is the root cause of the problems of society.
Malthusian Theory – the rate of population growth is higher than the rate
of food production.
David Ricardo - one of the famous classical economists, developed the
theory or law of comparative advantage. Based on this theory, nations
should export the goods which they enjoy the greatest advantage, and
should import the goods which they have the greatest disadvantage.

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 Theory of Karl Marx
 The economic ideas of Karl Marx were basically derived
from the classical economists. He only qualified his theory of
value by emphasizing that labor must be socially necessary.
 Dialectics – process of Hegel, in which Marx stated that
there is a class conflict between the workers and the
capitalist.
 Workers constitutes the “thesis” which is positive
 Capitalists constitute the “anti-thesis” which is negative.
 A new system result by the opposition of the groups called
“synthesis”.
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 The Classical Theories
 Jean Sismondi - A noted Italian writer, disagreed in many ways with
Adams Smith. He stated that wealth should not be measured in
terms of material things but in terms of human welfare.
 Friedrich List - was a German professor of economics and political
science. He also did not agree with the ideas of the classical
economists about production, free trade, and free competition.
 Henry George - He saw the rapid economic growth in California
during the 1870’s amidst widespread poverty. He
 John Meynard Keynes - An English economists, who found the
answer to the American problems. He claimed that high wages could
not be the cause of unemployment.

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 INNOVATION THEORY

Joseph Schumpeter - Is the author of the innovation

theory. He placed emphasis on the role of the
innovator in economic development. The innovator is
the economic leader or the entrepreneur who has the
courage and imagination to handle old systems, and
be able to transform theory into practice.

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 SOME GROWTH MODELS
 Harrod-Domar Model - This model was developed by Sir
Harrod of England and Professor Domar of America. The
key factor is physical capital like machinery, buildings,
equipment, etc. The model shows the relationship between the
input and the output.
 The Kaldor Model - The author of this economic growth model
is Nicholas Kaldor. The key factor is technology. He pointed
out that technology is embodied in physical capital. He further
stated that technical progress comes from investment.
Examples are modern machineries, tools and, equipment.

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 Highlight Summary

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