Terminologie économique anglaise

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This fundamental belief in the efficiency of markets was restated by Friedrich v. Hayek, in the Use Knowledge.

Hayek states that all producers (all agents working in an economy) have knowledge about their work. Hayek then argues that it is impossible for a central planner (a government) to collect all this knowledge. Planning cannot work because planners cannot acquire and handle all the information use in a complex economy.

But, Hayek states that the price mechanism (i.e. all prices set in all markets) provides each individual producer with sufficient information to organize her work. Each producer knows the cost of her inputs, and the price at which she can sell her products, so she can decide how to produce and how much to produce.

For prices to operate as correct signals, obviously markets have to be free, or liberalized. Producers can then make the right decisions, and resources allocated efficiently.

This is essentially a re-statement of the invisible hand, and Hayek’s arguments were very important in the liberalisation of markets from the 1970s onwards.

Smith and the classical economists talked about wealth, Smith’s book is usually called ‘’the Wealth of Nations’’.

Also, classical economists believed that the source of wealth was labour, which creates value.

The ‘’labour theory of value’’ suggests that the value of goods and services depends on the labour incorporated in their production.

Intuitively, something which takes a lot of time to make should be more expensive than something which can be made quickly.

A tarte aux fraises is four times as expensive as a baguette, because it takes more time to make.

So classical economics discusses the creation of value a lot. As we shall see next week, however, the formation of prices is difficult to explain in terms of labour.

Chapter I

- Productive

- Labour

- Skill

- Directed

Capitalists generally seem to increase the division of labour, so that output per worker increases.

A greater division of labour also means that many jobs do not require high skills.

Ricardo took the idea of the division of labour and the expansion of markets ( the ability to exchange) and applied this to international trade.

Ricardo argued that two countries trading two goods (cloth and wine) would booth be better-off (richer) if each country allocated resources to the activity in which it has a comparative advantage. Even if one country can make both products more cheaply, both countries between from specialization according to their comparative advantage (how much cheaper it is to produce cloth or wine in terms of the labour used).

Ricardo (and others like Montesquieu) also argued that trade encourages peace between countries. And this idea was the basis for the creation of a liberalizing trade regime after the World War II: it was the basis of the European economic community.

Of course, reality is more complex. In the Globalisation paradox (2011), Dani Rodrik shows that opening markets by cutting tariffs may improve overall social welfare, but also leads to concentrated costs. When tariffs are low, further tariff cuts lead to even more concentrated costs for certain workers, industries and regions.

Rodrik also recalls that the globalization and liberalization of the 19th century ended with World War I.

And obviously we can see considerable strains in the European union today. Britain is leaving: national populism has become a fairly important political phenomenon.

Karl Marx (with Engels) provided the first overall, comprehensive critique of capitalism and economics.

He argued that capitalists were expropriating labour from workers (i.e. exploiting workers), by taking the labour produced, and only paying workers for the labour power.

The labour power was paid a value equivalent to what is needed to produce workers and their children):food, housing and necessities.

The difference in the value paid and the value produced is ‘’surplus value’’, which is profit for capitalists.

Marx and Engels also argued that commodity relationships (money relationships) between people are dehumanized. All relationships become dominated by money. All goods and services and workers are transformed into commodities to be bought and sold in the market.

He also argued that capitalism is essentially unstable, and suffers crises, especially because the rates of profit (or surplus value) falls over time as production involves more capital (machines) than labour.

Also, workers do not have enough purchasing power to buy the products of production. By definition , capitalism leads to crises of over-production.