Lesson 1

• Economic growth


  Increases of production of goods and services in an economy
• Economic Growth - Uses GDP (Gross Domestic Production), Focuses on Quantitative measure of economic growth, is short-term, does not focus on fair distribution of wealth, and focuses on production of goods and services
• Economic development

  Focuses on the improvement of the overall quality of life, HDI (Human Development Index), qualitative, long-term, focuses on fair distribution of wealth, focuses on distribution of resources
• Adam Smith (1723-1790) is the father of Economics and the Father of Capitalism
• Adam Smith's contributions

  • Wrote "An Inquiry into the nature and cause of wealth of nations"
  • Created Gross Domestic Product (GDP)
  • Laissez-Faire Economics
  • Free Market and Competition
  • The Invisible Hand
  • Division of Labor
  • Value theory
  • Critique of mercantilism
• David Ricardo's (1772-1823) contributions

  • Wrote "Principles of Political Economy and Taxation"
  • Comparative Advantage
  • Economic Rents
  • Labor Theory of Value
  • Ricardian Equivalence
• Karl Marx's (1818-1883) contributions

  • Wrote "The Communist" and "Das Kapital"
  • Historical Materialism
  • Class Struggle
  • Surplus Value
  • Believed in the labour theory of value
• John Maynard Keynes' (1883-1946) contributions

  • Wrote "The General Theory of Employment, Interest, and Money"
  • Keynesian Economics
  • Advocated for government intervention
• Alfred Marshall's (1842-1924) contributions

  • Wrote "Principles of Economics"
  • The originator and known for his work on Microeconomics
  • Price elasticity
  • Consumer Surplus
  • Marginal Utility
  • Also known for the Theory of Demand and Supply
• Joseph Schumpeter's (1883-1950) contributions


  • Wrote "Capitalism, Socialism and Democracy"
  • Theory of Creative Destruction
  • Offered the First German and English references to methodological individualism in economics
• Milton Friedman's (1912-2006) contributions


  • Wrote "A Monetary History of the United States, 1879-1960"
  • Monetarism
• Friedrich Hayek's (1899-1992) contributions

  • Wrote "The Road to Serfdom"
  • Advocated for Classical Liberalism (Laissez-faire and Free market)
• Amartya Sen's (1933-Present) contributions

  • Wrote "Development as Freedom" and "Poverty and Famines"
  • Welfare Economics
  • Social Choice Theory
  • Development Economics
  • Capability approach
• Paul Samuelson's (1915-2009) contributions

  • Wrote "Foundations of Economic Analysis"
  • Neoclassical Synthesis
  • Blending Keynesian and Classical Economics
• Key Theories: Classical and Neoclassical Theories of Development

  • Adam Smith
  • David Ricardo
  • Thomas Malthus
  • John Stuart Mill
  • Jean-Baptiste Say
  • Nassau William Senior
• Key Theories: Neo-Marxist Dependency Theories


  • Dependency Theory
  • Core-Periphery Model
  • Capitalist Exploitation
  • Unequal Exchange
  • Imperialism
• Dependency Relationships


  • Rich countries control the global economy and create policies and institutions that make poor countries depend on them
  • Poor countries usually only provide raw materials and cheap labor
• While Neo-Marxist Dependency Theory provides useful ideas, it has some criticisms. Critics say it ignores problems within poor countries, like bad governance, corruption, and cultural issues. Some believe it makes people think development is hopeless, discouraging them from taking action to improve their situation.
• Despite criticism, Neo-Marxist Dependency Theories still influence talks about global economic inequality and development. They suggest that poor countries need help to compete in the global economy.
• Four Approaches to Development Theory

  • Linear Stages of Growth Model
  • Theories and Patterns of Structural Change
  • International Dependence Revolution
  • Neoclassical Counter-Revolution
• Linear Stages of Growth Model


  Development is seen as a sequence of stages through which all countries must pass, includes Rostow's "Stages of Economic Growth" and Harrod-Domar Growth Model, criticized for assuming all countries follow a similar path and ignoring structural and institutional differences
• Theories and Patterns of Structural Change

  Focuses on the internal process of structural transformation that a typical developing economy must undergo to achieve and sustain economic growth, includes Lewis Model and Pattern of Development, criticized for often failing to account for external constraints and international context
• International Dependence Revolution


  Views underdevelopment as a result of exploitative international and domestic structures, includes Neo-Marxist Dependency Theory, False-Paradigm Model, and Dualistic-Development Thesis, criticized for being overly deterministic and pessimistic about the potential for development
• Neoclassical Counter-Revolution


  Emphasizes the role of free markets, minimal government intervention, and open economies in fostering development, includes Supply-Side Economics, Public Choice Theory, and Market-Friendly Approach, criticized for not adequately addressing structural and institutional constraints and potentially leading to increased inequality
• • Underdevelopment is mainly caused by the peripheral position of affected countries in the world economy.

  Dependency Theory
• Core-Periphery Model - Core Countries, Periphery Countries, Semi-Periphery Countries
• Capitalist Exploitation - rich countries exploit poor countries
• Unequal Exchange - developing countries sell raw materials for low prices but buy expensive manufactured goods
• Rich countries control and dominate poor countries economically and politically

  Imperialism
• Thomas Malthus - Population Theory, Malthusian Trap, Preventive and Positive Checks
• John Stuart Mill - Utilitarianism, Theory of Production and Distribution, Market and State Roles, Harm Principle
• Jean-Baptiste Say - Say's Law, Entrepreneurship, Value Theory
• Nassau William Senior - Abstinence Theory of Interest, Role of Government, Marginal Utility
• Neoclassical Synthesis - Written by Paul Samuelson which is an attempt to reconcile the apparent differences between the two schools of thought and create a more comprehensive theory of macroeconomics
• Laissez-Faire Economics - advocated minimal government intervention in economic affairs, promoting the idea that individuals pursuit of self-interest leads to societal benefits
• Free Market and Competition - drive economic efficiency and innovation.
• The Invisible Hand - a metaphor describing how individuals self interest in a free market economy can lead to positive societal outcomes. (By pursuing one’s own interest, society as a whole can benefit)
• Division of Labor - the benefits of labour specialization in improving

  productivity and efficiency. (the separation of work process into

  numbers of task)
• Value theory - distinguished between Value in use ( usefulness

  of a good) and value in exchange (what can be obtained for it in

  trade)
• Critique of mercantilism - argued for benefits of free trade and

  criticized the inefficiency of monopoly.