1.
Capitalism
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Capitalism is an economic system based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, economists, political economists, and historians have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include laissez-faire or free market capitalism, welfare capitalism, different forms of capitalism feature varying degrees of free markets, public ownership, obstacles to free competition, and state-sanctioned social policies. Most existing capitalist economies are mixed economies, which elements of free markets with state intervention. Capitalism has existed under many forms of government, in different times, places. Following the decline of mercantilism, mixed capitalist systems became dominant in the Western world, Capitalism has been criticized for prioritizing profit over social good, natural resources, and the environment, and that is a cause of inequality and economic instabilities. Supporters believe that it provides better products through competition, and creates strong economic growth, the term capitalist, meaning an owner of capital, appears earlier than the term capitalism. It dates back to the mid-17th century, capitalist is derived from capital, which evolved from capitale, a late Latin word based on caput, meaning head – also the origin of chattel and cattle in the sense of movable property. Capitale emerged in the 12th to 13th centuries in the sense of referring to funds, stock of merchandise, sum of money, by 1283 it was used in the sense of the capital assets of a trading firm. It was frequently interchanged with a number of other words – wealth, money, funds, goods, assets, property, the Hollandische Mercurius uses capitalists in 1633 and 1654 to refer to owners of capital. In French, Étienne Clavier referred to capitalistes in 1788, six years before its first recorded English usage by Arthur Young in his work Travels in France, David Ricardo, in his Principles of Political Economy and Taxation, referred to the capitalist many times. Samuel Taylor Coleridge, an English poet, used capitalist in his work Table Talk, Pierre-Joseph Proudhon used the term capitalist in his first work, What is Property. To refer to the owners of capital, benjamin Disraeli used the term capitalist in his 1845 work Sybil. The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850, Karl Marx and Friedrich Engels referred to the capitalistic system. And to the capitalist mode of production in Das Kapital, the use of the word capitalism in reference to an economic system appears twice in Volume I of Das Kapital, p.124, and in Theories of Surplus Value, tome II, p.493. Marx did not extensively use the form capitalism but instead those of capitalist, and capitalist mode of production, also according to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the phrase private capitalism in 1863. Capital has existed incipiently on a scale for centuries, in the form of merchant, renting and lending activities. Simple commodity exchange, and consequently simple commodity production, which are the basis for the growth of capital from trade, have a very long history
2.
Business
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A business is an organizational entity involved in the provision of goods and services to consumers. Businesses may also be social non-profit enterprises or state-owned public enterprises operated by governments with specific social, a business owned by multiple private individuals may form as an incorporated company or jointly organise as a partnership. Countries have different laws that may ascribe different rights to the business entities. The word business can refer to an organization or to an entire market sector or to the sum of all economic activity. Compound forms such as agribusiness represent subsets of the broader meaning. Businesses aim to maximize sales to have their income exceed their expenditures, resulting in a profit, the owner operates the business alone and may hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, partnership, A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business, the three most prevalent types of for-profit partnerships are, general partnerships, limited partnerships, and limited liability partnerships. Corporation, The owners of a corporation have limited liability and the business has a legal personality from its owners. Corporations can be either government-owned or privately owned and they can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, a privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange. Cooperative, Often referred to as a co-op, a cooperative is a limited-liability business that can organize as for-profit or not-for-profit, a cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives, cooperatives are fundamental to the ideology of economic democracy. In contrast, unincorporated businesses or persons working on their own are not as protected. Franchises, A franchise is a system in which entrepreneurs purchase the rights to open, franchising in the United States is widespread and is a major economic powerhouse. One out of retail businesses in the United States are franchised and 8 million people are employed in a franchised business. Real estate businesses sell, invest, construct and develop properties – including land, residential homes, retailers, wholesalers, and distributors act as middlemen and get goods produced by manufacturers to the intended consumers, they make their profits by marking up their prices. Most stores and catalog companies are distributors or retailers, transportation businesses such as railways, airlines, shipping companies that deliver goods and individuals to their destinations for a fee
3.
Business cycle
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The business cycle or economic cycle is the downward and upward movement of gross domestic product around its long-term growth trend. The length of a cycle is the period of time containing a single boom. These fluctuations typically involve shifts over time periods of relatively rapid economic growth, and periods of relative stagnation or decline. Business cycles are usually measured by considering the rate of real gross domestic product. Despite the often-applied term cycles, these fluctuations in economic activity do not exhibit uniform or predictable periodicity, the common or popular usage boom-and-bust cycle refers to fluctuations in which the expansion is rapid and the contraction severe. Prior to that point classical economics had either denied the existence of cycles, blamed them on external factors, notably war. Sismondi found vindication in the Panic of 1825, which was the first unarguably international economic crisis and they advocated government intervention and socialism, respectively, as the solution. He devoted hundreds of pages of Das Kapital to crises, in Progress and Poverty, Henry George focused on lands role in crises – particularly land speculation – and proposed a single tax on land as a solution. In 1860 French economist Clement Juglar first identified economic cycles 7 to 11 years long, interest in the different typologies of cycles has waned since the development of modern macroeconomics, which gives little support to the idea of regular periodic cycles. There were great increases in productivity, industrial production and real per capita product throughout the period from 1870 to 1890 that included the Long Depression, there were also significant increases in productivity in the years leading up to the Great Depression. Both the Long and Great Depressions were characterized by overcapacity and market saturation, the effect of technological progress can be seen by the purchasing power of an average hours work, which has grown from $3 in 1900 to $22 in 1990, measured in 2010 dollars. There were similar increases in wages during the 19th century. See Financial crisis, 19th century for listing and details, the first of these crises not associated with a war was the Panic of 1825. Business cycles in OECD countries after World War II were generally more restrained than the business cycles. This was particularly true during the Golden Age of Capitalism, in this period, the economic cycle – at least the problem of depressions – was twice declared dead. The first declaration was in the late 1960s, when the Phillips curve was seen as being able to steer the economy, however, this was followed by stagflation in the 1970s, which discredited the theory. The second declaration was in the early 2000s, following the stability, notably, in 2003, Robert Lucas, in his presidential address to the American Economic Association, declared that the central problem of depression-prevention been solved, for all practical purposes. Unfortunately, this was followed by the 2008–2012 global recession, various regions have experienced prolonged depressions, most dramatically the economic crisis in former Eastern Bloc countries following the end of the Soviet Union in 1991
4.
Businessperson
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An entrepreneur is an example of a businessperson. The term may mean someone who is involved in an upper-level management role in a corporation, company, enterprise, firm, organization. This can especially apply to the founder, an owner, a manager, since a businessman can mean anyone in industry or commerce, businessmen have existed as long as industry and commerce have existed. Commerce can simply mean trade, and trade has existed through all of recorded history, the first businessmen were traders, or merchants. Merchants emerged as a class in medieval Italy, between 1300 and 1500, modern accounting, the bill of exchange, and limited liability were invented, and thus the world saw the first true bankers, who are certainly businessmen. Around the same time, Europe saw the emergence of rich merchants and this rise of the merchant class came as Europe needed a middleman for the first time, and these burghers or bourgeois were the people who played this role. Europe became the dominant global power in the 16th century. In this period, Europe developed and used paper money, checks, developments in actuarial science led to insurance. Together, these new tools were used by a new kind of businessman and these people owned or financed businesses as bankers, but they were not merchants of goods. These capitalists were a force in the Industrial Revolution. The newest kind of businessperson is the manager, one of the first true managers was Robert Owen, an industrialist in Scotland. He studied the problems of productivity and motivation, and was followed by Frederick Winslow Taylor, after World War I, management became popular due to the example of Herbert Hoover and the Harvard Business School, which offered degrees in business administration. There are no prescribed educational qualifications, rules or guidelines which one may follow, a person owning a small gas station in a local market is as much as a businessperson as a person who owns and leads a large Silicon Valley technology giant. There are many paths to becoming a businessperson, hence, no rigid formal educational qualification requirements can be stated for becoming a businessperson. However, there are attributes that successful businessmen must possess, Tact financial and business savvy, courage, leadership, vision, creativity, imagination. Among these components include branding, advertising, and public relations, well-balanced consistency in their business approach. Interest in giving back to society through philanthropy or venture capitalism for future socioeconomic development, hence, a businessperson should have the ability to take prompt decisions. Determination, courage and perseverance, They must have strong power and determination
5.
Capital (economics)
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In economics, capital goods, real capital, or capital assets are already-produced, durable goods or any non-financial asset that is used in production of goods or services. Adam Smith defines capital as That part of a stock which he expects to afford him revenue. The term stock is derived from the Old English word for stump or tree trunk and it has been used to refer to all the moveable property of a farm since at least 1510. In Middle Ages France contracted leases and loans bearing interest specified payment, how a capital good is maintained or returned to its pre-production state varies with the type of capital involved. In most cases capital is replaced after a period as newer forms of capital make continued use of current capital non profitable. It is also possible that advances make a form of capital practical again. Capital is distinct from land in that capital can be increased by human labor, at any given moment in time, total physical capital may be referred to as the capital stock. Capital is an input in the production function, homes and personal autos are not usually defined as capital but as durable goods because they are not used in a production of saleable goods and services. In Marxist political economy, capital is used to buy something only in order to sell it again to realize a financial profit. In more contemporary schools of economics, this form of capital is referred to as financial capital and is distinguished from capital goods. Classical and neoclassical economics regard capital as one of the factors of production, all other inputs to production are called intangibles in classical economics. This includes organization, entrepreneurship, knowledge, goodwill, or management and this is what makes it a factor of production, The good is not used up immediately in the process of production unlike raw materials or intermediate goods. The good can be produced or increased and these distinctions of convenience have carried over to contemporary economic theory. There was the clarification that capital is a stock. As such, its value can be estimated at a point in time, by contrast, investment, as production to be added to the capital stock, is described as taking place over time, thus a flow. Since at least the 1960s economists have increasingly focused on forms of capital. These terms lead to questions and controversies discussed in those articles. It is in the form of assets, traded in financial markets
6.
Capital accumulation
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The process of capital accumulation forms the basis of capitalism, and is one of the defining characteristics of a capitalist economic system. In a more broad sense, capital accumulation may refer to the gathering or amassing of any objects of value as judged by ones perceived reproductive interest group. The definition of capital accumulation is subject to controversy and ambiguities, because it could refer to, most often, capital accumulation involves both a net addition and a redistribution of wealth, which may raise the question of who really benefits from it most. If more wealth is produced there was before, a society becomes richer. But if some accumulate capital only at the expense of others and it is also possible that some accumulate capital much faster than others. In principle, it is possible that a few people or organisations accumulate capital and grow richer, in economics and accounting capital accumulation is often equated with investment of profit income or savings, especially in real capital goods. The concentration and centralisation of capital are two of the results of such accumulation, Capital accumulation refers ordinarily to, real investment in tangible means of production, such as acquisitions, research and development, etc. that can increase the capital flow. Investment in financial assets represented on paper, yielding profit, interest, rent, investment in non-productive physical assets such as residential real estate or works of art that appreciate in value. And by extension to, human capital, i. e. new education, social capital, i. e. the wealth and productive capacity that the people in a society hold in common, rather than as individuals or corporations. Both non-financial and financial capital accumulation is usually needed for economic growth, smarter and more productive organization of production can also increase production without increased capital. Capital can be created without increased investment by inventions or improved organization that increase productivity, discoveries of new assets, the term is occasionally used in national accounts. Accumulation can be measured as the value of investments, the amount of income that is reinvested. Usually the Reserve Banks and the Treasury provide interpretations and analysis of this data, standard indicators include Capital formation, Gross fixed capital formation, fixed capital, household asset wealth, and foreign direct investment. Organisations such as the International Monetary Fund, UNCTAD, the World Bank Group, the OECD, the Bureau of Economic Analysis, Eurostat and the Japan Statistical Office provide data on the USA, Europe and Japan respectively. A reputable scientific journal is the Review of Income & Wealth, in the case of the USA, the Analytical Perspectives document provides useful wealth and capital estimates applying to the whole country. The rate of growth of the stock of fixed capital is. If the capital-output ratio or capital coefficient is constant, the rate of growth of Y is equal to the rate of growth of K and this is determined by s and k. A country might for example save and invest 12% of its national income, however, as Keynesian economics points out, savings do not automatically mean investment
7.
Capital market
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A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets are defined as markets in money is provided for periods longer than a year. Capital markets channel the wealth of savers to those who can put it to productive use. There are many thousands of systems, most serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, physically the systems are hosted all over the world, though they tend to be concentrated in financial centres like London, New York, and Hong Kong. A capital market can be either a primary market or a secondary market, in primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting. The main entities seeking to raise funds on the primary capital markets are governments. Governments issue only bonds, whereas companies often issue either equity or bonds, the main entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary markets, existing securities are sold and bought among investors or traders, usually on an exchange, over-the-counter, or elsewhere. The existence of secondary markets increases the willingness of investors in primary markets, a second important division falls between the stock markets and the bond markets. The money markets are used for the raising of short term finance, whereas the capital markets are used for the raising of long term finance, such as the purchase of shares, or for loans that are not expected to be fully paid back for at least a year. Funds borrowed from the markets are typically used for general operating expenses. For example, a company may have inbound payments from customers that have not yet cleared, when a company borrows from the primary capital markets, often the purpose is to invest in additional physical capital goods, which will be used to help increase its income. It can take months or years before the investment generates sufficient return to pay back its cost. Together, money markets and capital markets form the financial markets as the term is narrowly understood, the capital market is concerned with long term finance. In the widest sense, it consists of a series of channels through which the savings of the community are available for industrial and commercial enterprises. Regular bank lending is not usually classed as a market transaction. A key difference is that with a bank loan, the lending is not securitised
8.
Company
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A company, abbreviated co. is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise. Company members share a common purpose and unite in order to focus their various talents and organize their collectively available skills or resources to achieve specific, because companies are legal persons, they also may associate and register themselves as companies – often known as a corporate group. When the company closes it may need a certificate to avoid further legal obligations. A company can be defined as a person, invisible, intangible, created by or under law, with a discrete legal personality, perpetual succession. It is not affected by the death, insanity, or insolvency of an individual member, by 1303, the word referred to trade guilds. Usage of company to mean business association was first recorded in 1553, in English law and in legal jurisdictions based upon it, a company is a body corporate or corporation company registered under the Companies Acts or similar legislation. It may be referred to as a firm, in the US, a company is not necessarily a corporation. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities, the members guarantee the payment of certain amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company. This type of company is common in England, a company limited by guarantee may be with or without having share capital. The most common form of used for business ventures. This type of company is common in England and many English-speaking countries, a company limited by shares may be a publicly traded company or a privately held company. A company limited by guarantee with a share capital, a hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, a company—statutorily authorized in certain states—that is characterized by limited liability, management by members or managers, and limitations on ownership transfer, i. e. L. L. C. LLC structure has been called hybrid in that it combines the characteristics of a corporation, an unlimited company with or without a share capital. A hybrid entity, a company where the liability of members or shareholders for the debts of the company are not limited, in this case doctrine of veil of incorporation does not apply. Less common types of companies are, Companies formed by letters patent, most corporations by letters patent are corporations sole and not companies as the term is commonly understood today. Before the passing of modern companies legislation, these were the types of companies. Now they are rare, except for very old companies that still survive
9.
Corporation
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A corporation is a company or group of people authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter, most jurisdictions now allow the creation of new corporations through registration. Corporations chartered in regions where they are distinguished by whether they are allowed to be for profit or not are referred to as for profit and not-for-profit corporations, there is some overlap between stock/non-stock and for profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for profit corporation is almost always a stock corporation, registered corporations have legal personality and are owned by shareholders whose liability is limited to their investment. Shareholders do not typically actively manage a corporation, shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity, in American English, the word corporation is most often used to describe large business corporations. In British English and in the Commonwealth countries, the company is more widely used to describe the same sort of entity while the word corporation encompasses all incorporated entities. In American English, the company can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity. Despite not being human beings, corporations, as far as the law is concerned, are legal persons. Corporations can exercise human rights against real individuals and the state, Corporations can be dissolved either by statutory operation, order of court, or voluntary action on the part of shareholders. Corporations can even be convicted of offenses, such as fraud. However, corporations are not considered living entities in the way humans are. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock, in Germany, the organization was referred to as Gesellschaft mit beschränkter Haftung or GmbH. In the last quarter of the 20th Century this new form of organization became available in the United States and other countries. Since the GmbH and LLC forms of organization are technically not corporations they will not be discussed in this article, the word corporation derives from corpus, the Latin word for body, or a body of people. By the time of Justinian, Roman law recognized a range of corporate entities under the names universitas and these included the state itself, municipalities, and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, private associations were granted designated privileges and liberties by the emperor. Entities which carried on business and were the subjects of rights were found in ancient Rome. In medieval Europe, churches became incorporated, as did local governments, such as the Pope, the point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity
10.
Competition (economics)
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Merriam-Webster defines competition in business as the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms. Later microeconomic theory distinguished between perfect competition and imperfect competition, concluding that perfect competition is Pareto efficient while imperfect competition is not. Competition, according to the theory, causes commercial firms to develop new products, services and technologies, the greater selection typically causes lower prices for the products, compared to what the price would be if there was no competition or little competition. Competition is generally accepted as a condition for the coordination of disparate individuals interests via the market process. It is generally accepted that competition results in lower prices and a number of goods delivered to more people. Less competition is perceived to result in higher prices with a fewer number of—and less innovation in—goods delivered to fewer people, as a result, many governments use competition laws to promote competition and regulate against anti-competitive practices. Competition is seen as a state which produces gains for the whole economy, competition is widespread throughout the market process. It is a condition where buyers tend to compete with other buyers, in offering goods for exchange, buyers competitively bid to purchase specific quantities of specific goods which are available, or might be available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering goods on the market, competing for the attention, competition results from scarcity—there is never enough to satisfy all conceivable human wants—and occurs when people strive to meet the criteria that are being used to determine who gets what. For the competitive process to work however, it is important that prices accurately signal costs and benefits, where externalities occur, or monopolistic or oligopolistic conditions persist, or for the provision of certain goods such as public goods, the pressure of the competitive process is reduced. Competition may also lead to wasted effort and to increased costs in some circumstances, in a small number of goods and services, the cost structure means that competition may be inefficient. These situations are known as natural monopoly and are usually publicly provided or tightly regulated, competition does not necessarily have to be between companies. For example, business writers sometimes refer to internal competition, the idea was first introduced by Alfred Sloan at General Motors in the 1920s. Sloan deliberately created areas of overlap between divisions of the company so that division would be competing with the other divisions. For example, the Chevy division would compete with the Pontiac division for some market segments, also, in 1931, Procter & Gamble initiated a deliberate system of internal brand versus brand rivalry. The company was organized around different brands, with each brand allocated resources, each brand manager was given responsibility for the success or failure of the brand and was compensated accordingly. This form of competition thus pitted a brand against another brand, finally, most businesses also encourage competition between individual employees. An example of this is a contest between sales representatives, the sales representative with the highest sales over a period of time would gain benefits from the employer
11.
Economic interventionism
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Economic interventionism is an economic policy perspective favoring government intervention in the market process to correct the market failures and promote the general welfare of the people. The term intervention is used by advocates of laissez-faire and free markets. Capitalist market economies that feature high degrees of intervention are often referred to as mixed economies. Government regulation over markets and/or firms can also be a type of intervention when it inhibits, corrects or distorts the market mechanism in setting the price of a good or service. Indicative planning in market economies is sometimes considered to be a form of intervention when it influences the setting of prices in markets. Socialists often criticize interventionism as being untenable and liable to cause more economic distortion in the long-run, the effects of government economic interventionism are widely disputed. One study suggests that after the lost decade an increasing diffusion of regulatory authorities emerged, Latin America through the 1980s had undergone a debt crisis and hyperinflation. These international stakeholders restricted the economic leverage, and bound it in contract to co-operate. Multiple projects and years of failed attempts, for the Argentine state to comply, two key intervention factors that instigated economic progress in Argentina, were substantially increasing privatization and the establishment of a currency board. In Western countries, government officials theoretically weigh the cost benefit for an intervention for the population or they succumb beneath coercion by a private party. Also intervention for economic development is at the discretion and self-interest of the stake holders, to illustrate this during the 2008 debt crisis, the government and international institutions did not prop Lehman Brothers up therefore allowing them to file bankruptcy. Days later when AIG waned towards collapsing, the state spent public money to keep it from falling and these corporations have interconnected interests with the state. Therefore, their incentive is to influence the government to designate regulatory policies that will not inhibit their accumulation of assets. In Japan, Abenomics is a form of intervention with respect to Prime Minister Shinzo Abes desire to restore the former glory in the midst of a globalized economy. President Richard Nixon signed amendments to the Clean Air Act in 1970 and it was later further amended in 1977 and 1990. NEPA remains one of the most commonly used environmental laws in the nation, in addition to NEPA, there are numerous pollution-control statutes that apply to such specific environmental media as air and water. The best known of these laws are the Clean Air Act, Clean Water Act, and the Comprehensive Environmental Response, Compensation, during World War I, U. S government intervention mandated that the manufacturing of cars be replaced with machinery to successfully fight the war. Today government intervention could be used to break the U. S dependence on oil by mandating U. S automakers to produce electric cars such as the Chevrolet Volt
12.
Economic surplus
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In mainstream economics, economic surplus, also known as total welfare or Marshallian surplus, refers to two related quantities. In Marxian economics, the surplus may also refer to surplus value, surplus product. In the mid-19th century, engineer Jules Dupuit first propounded the concept of economic surplus, on a standard supply and demand diagram, consumer surplus is the area above the equilibrium price of the good and below the demand curve. Yet they in fact pay just the price for each unit they buy. Likewise, in the diagram, producer surplus is the area below the equilibrium price. Yet they in fact receive the equilibrium price for all the units they sell, consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they do pay. If a consumer would be willing to pay more than the current asking price, an example of a good with generally high consumer surplus is drinking water. People would pay very high prices for drinking water, as they need it to survive, the difference in the price that they would pay, if they had to, and the amount that they pay now is their consumer surplus. Note that the utility of the first few liters of drinking water is very high, typically these prices are decreasing, they are given by the individual demand curve. The consumers surplus is highest at the largest number of units for which, even for the last unit, the aggregate consumers surplus is the sum of the consumers surplus for all individual consumers. This can be represented graphically as shown in the graph of the market demand. The consumer surplus is the area under the curve and above a horizontal line at the actual price. For more general demand and supply functions, these areas are not triangles and this shows that if we see a rise in the equilibrium price and a fall in the equilibrium quantity, then consumer surplus falls. When supply of a good expands, the falls and consumer surplus increases. Consider an example of linear supply and demand curves, for an initial supply curve S0, consumer surplus is the triangle above the line formed by price P0 to the demand line. If supply expands from S0 to S1, the consumers surplus expands to the triangle above P1, the change in consumers surplus is difference in area between the two triangles, and that is the consumer welfare associated with expansion of supply. Some people were willing to pay the higher price P0, the second set of beneficiaries are consumers who buy more, and new consumers, those who will pay the new lower price but not the higher price. Their additional consumption makes up the difference between Q1 and Q0, the rule of one-half estimates the change in consumer surplus for small changes in supply with a constant demand curve
13.
Entrepreneurship
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What appears as a real opportunity ex ante might actually be a non-opportunity or one that cannot be actualized by entrepreneurs lacking the necessary business skills, financial or social capital. Traditionally, an entrepreneur has been defined as a person who starts, organizes and manages any enterprise, especially a business, usually with considerable initiative and risk. Rather than working as an employee, an entrepreneur runs a business and assumes all the risk and reward of a given business venture, idea. The entrepreneur is commonly seen as a leader and innovator of new ideas. They act as the manager and oversee the launch and growth of an enterprise, Entrepreneurship is the process by which an individual identifies a business opportunity and acquires and deploys the necessary resources required for its exploitation. For Schumpeter, the changes and dynamic disequilibrium brought on by the innovating entrepreneur, the ‘norm’ of a healthy economy. Entrepreneurial spirit is characterized by innovation and risk-taking, for example, in the 2000s, the field of social entrepreneurship has been identified, in which entrepreneurs combine business activities with humanitarian, environmental or community goals. In the 2010s, entrepreneurship can be studied in college or university as part of the disciplines of management or business administration, Entrepreneur, is a loanword from French. First used in 1723, today the term entrepreneur implies qualities of leadership, initiative, economist Robert Reich has called team-building, leadership, and management ability essential qualities for the entrepreneur. Historically the study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Richard Cantillon and Adam Smith, which was foundational to classical economics. In the 20th century, entrepreneurship was studied by Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises, the term entrepreneurship was coined around the 1920s, while the loan from French of the word entrepreneur dates to the 1850s. According to Schumpeter, an entrepreneur is willing and able to convert a new idea or invention into a successful innovation, thus, creative destruction is largely responsible for long-term economic growth. The idea that leads to economic growth is an interpretation of the residual in endogenous growth theory. For Schumpeter, entrepreneurship resulted in new industries and in new combinations of currently existing inputs, Schumpeters initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformational and it did not immediately replace the horse-drawn carriage, but in time, incremental improvements reduced the cost and improved the technology, leading to the modern auto industry. Despite Schumpeters early 20th-century contributions, traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks, in this treatment, the entrepreneur was an implied but unspecified actor, consistent with the concept of the entrepreneur being the agent of x-efficiency. For Schumpeter, the entrepreneur did not bear risk, the capitalist did, Schumpeter was of the opinion that entrepreneurs shift the Production Possibility Curve to a higher level using innovations. Cantillon emphasized the willingness of the entrepreneur to assume risk and to deal with uncertainty, thus, he draws attention to the function of the entrepreneur, and distinguishes clearly between the function of the entrepreneur and the owner who provides the money
14.
Financial market
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A financial market is a market in which people trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural products, in economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. The term market is used for what are more strictly exchanges, organizations that facilitate the trade in financial securities. This may be a location or an electronic system. Another common use of the term is as a catchall for all the markets in the financial sector, capital markets which to consist of, Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of bonds, commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment, derivatives markets, which provide instruments for the management of financial risk. Futures markets, which provide standardized forward contracts for trading products at some future date, Foreign exchange markets, which facilitate the trading of foreign exchange. Spot market Interbanks market The capital markets may also be divided into primary markets, newly formed securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities, the transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors. Liquidity is an aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value, securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want, Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a term basis. Without financial markets, borrowers would have difficulty finding lenders themselves, intermediaries such as banks, Investment Banks, and Boutique Investment Banks can help in this process. Banks take deposits from those who have money to save and they can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages, a good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its shares can be bought or sold
15.
Free price system
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A free price system or free price mechanism is a mechanism of resource allocation that relies upon monetary prices set by the interchange of supply and demand. The resulting prices serve as signals communicated between producers and consumers which serve to guide the production and distribution of resources, through the free price system, supplies are rationed, income is distributed, and resources are allocated. A free price system contrasts with a price system where prices are administered by government in a controlled market. The price system, whether free or controlled, contrasts with physical, since resources of consumers are limited at any given time, consumers are relegated to satisfying wants in a descending hierarchy and bidding prices relative to the urgency of a variety of wants. This information on relative values is communicated, through price signals, in turn, relative prices for the productive services are established. The interchange of two sets of prices establish market value, and serve to guide the rationing of resources, distributing income. Those goods which command the highest prices provide an incentive for businesses to provide these goods in a descending hierarchy of priority. However, the ordering of this hierarchy of wants is not constant, when consumer preferences for a good increase, then bidding pressure raises the price for a particular good as it moves to a higher position in the hierarchy. As a result of prices for this good, more productive forces are applied to satisfying the demand driven by the opportunity for higher profits in satisfying this new consumer preference. In other words, the high price sends a signal to producers. Hence, the now lower price provides a signal to producers to decrease production and, as a result. Also, as resources become more scarce the price increases, which signals to consumers to reduce consumption thereby ensuring that the quantity demanded does not exceed the quantity supplied and it is in this way that the free price system persuades consumers to ration dwindling resources. Hence, supply and demand affects price while at the time, price affects supply. If prices remain high because increases in supply cannot keep pace with demand, individual employments and incomes are also guided by the price system. Employment will move toward those goods and services that consumers value, the Freeman, The Foundation for Economic Education, June 1958
16.
Free market
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Another view considers systems with significant market power, inequality of bargaining power, or information asymmetry to be less than free. It is a result of a need being, then the need being met, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy. Others believe regulation might be part of a market, if the regulation is necessary to control significant market power, inequality of bargaining power. The latter view implies a free market is not necessarily deregulated, although some of those with the former belief speak of free markets, friedrich Hayek argued in The Pure Theory of Capital that the goal is the preservation of the unique information contained in the price itself. The definition of free market has been disputed and made complex by collectivist political philosophers, during the marginal revolution, subjective value theory was rediscovered. Various forms of socialism based on free markets have existed since the 19th century, early notable socialist proponents of free markets include Pierre-Joseph Proudhon, Benjamin Tucker, and the Ricardian socialists. These economists believed that free markets and voluntary exchange could not exist within the exploitative conditions of capitalism. Advocates of free-market socialism such as Jaroslav Vanek argue that free markets are not possible under conditions of private ownership of productive property. Socialists also point out that free market capitalism leads to excessive disparities in the distribution of income, corporate monopolies run rampant in free markets, with endless agency over the consumer. Thus, free market capitalism desires government regulation of markets to prevent social instability and this implies that economic rents, i. e. profits generated from lack of perfect competition, must be reduced or eliminated as much as possible through free competition. Economic theory suggests the returns to land and other resources are economic rents that cannot be reduced in such a way because of their perfect inelastic supply. Some economic thinkers emphasize the need to share those rents as a requirement for a well functioning market. It is suggested this would eliminate the need for regular taxes that have a negative effect on trade as well as release land. Two features that improve the competition and free market mechanisms, winston Churchill supported this view by his statement Land is the mother of all monopoly. The American economist and social philosopher Henry George, the most famous proponent of this thesis, followers of his ideas are often called Georgists or Geoists and Geolibertarians. Léon Walras, one of the founders of the neoclassical economics who helped formulate the general theory, had a very similar view. He argued that competition could only be realized under conditions of state ownership of natural resources. Additionally, income taxes could be eliminated because the state would receive income to public services through owning such resources and enterprises
17.
Goods and services
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Physiocratic economists categorized production into productive labour and unproductive labour. This emphasis on production was adapted by David Ricardo, Thomas Robert Malthus and John Stuart Mill. Other, mainly Italian, 18th century economists maintained that all desired goods, the division of consumables into services is a simplification, these are not discrete categories. Most business theorists see a continuum with pure service at one endpoint, most products fall between these two extremes. For example, a restaurant provides a good, but also provides services in the form of ambience. Although some utilities, such as electricity and communications service providers, exclusively provide services, other utilities deliver physical goods, for public sector contracting purposes in the European Union, electricity supply is actually defined as goods rather than services. Goods are normally structural and can be transferred in an instant while services are delivered over a period of time, goods can be returned while a service once delivered cannot. Goods are not always tangible and may be virtual e. g. a book may be paper or electronic, marketing theory makes use of the service-goods continuum as an important concept which enables marketers to see the relative goods/services composition of total products. In a narrower sense, service refers to quality of customer service and this particular usage occurs frequently in retailing. Distinctions are made between goods and services in the context of international trade liberalization, for example, the World Trade Organizations General Agreement on Tariffs and Trade covers international trade in goods and the General Aglreement on Trade in Services covers the services sector
18.
Investor
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An investor allocates capital with the expectation of a future financial return. Types of investments include, equity, debt securities, real estate, currency, commodity, token, derivatives such as put and call options, futures, forwards and this definition makes no distinction between those in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors, an investor who owns a stock is a shareholder. The assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss, the term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from the term investment is one of degree of risk. It differs from gambling, which is based on random outcomes, investors can include stock traders but with this distinguishing characteristic, investors are owners of a company which entails responsibilities. There are two types of investors, retail investors and institutional investors, Individuals gambling in games of chance, in this respect, an important distinctive investor psychology trait is risk attitude. The term investor protection defines the entity of efforts and activities to observe, safeguard and enforce the rights and this includes advice and legal action. Countries with stronger investor protections tend to grow faster than those with poor investor protections, investor protection includes accurate financial reporting by public companies so the investors can make an informed decision. Investor protection also includes fairness of the market which means all participants in the market have access to the same information, investor protection through government is regulations and enforcements by government agencies to ensure that market is fair and fraudulent activities are eliminated. An example of a government agency provides protection to investors is the U. S. Securities and Exchange Commission. Investor protection through individual is the strategy that one utilizes to minimize loss, individual investors can protect themselves by purchasing only shares of businesses that they understand, or only those that remain calm through market volatility. An individual investor may be protected by the strategy he uses in investment, the strategy includes an appropriate price of the stocks or assets in the right time he enters. Its hard to fix what an appropriate price is, and when it is appropriate because no one makes a purchase or a sale absolutely in his most favorable situation, however, determination may be made when the price of such share or assets are undervalued comparing to its potentiality. This is called the margin of safety where an investor can feel at ease when the price of the stocks is alarmingly down, in various instances, the term investor is associated with a means of getting rich quickly. Historically, the road to successful investment is founded on preparation, with various goals that help smooth the journey to the ultimate. To be successful, authorities such as Investopedia advise that an investment plan must include an objective, a determined period of time for completion. A planned investment structure would be dependent on the desired investment target, for an investor, understanding the influencing factors related to finance is a valuable asset which can be gained from various sources. A financial awareness will help any investor learn and understand the mechanism of the investment marketplace, warren Buffett, an established and recognized expert on the subject of successful investing, has a simple philosophy, If I cannot understand it, I will not invest in it
19.
Marginalism
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Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. The reason why the price of diamonds is higher than that of water, for example, thus, while the water has greater total utility, the diamond has greater marginal utility. The neoclassical tradition that emerged from British marginalism abandoned the concept of utility, Marginalism is an integral part of mainstream economic theory. Constraints are conceptualized as a border or margin, the location of the margin for any individual corresponds to his or her endowment, broadly conceived to include opportunities. This endowment is determined by many things including physical laws, accidents of nature, a value that holds true given particular constraints is a marginal value. A change that would be affected as or by a specific loosening or tightening of those constraints is a marginal change, neoclassical economics usually assumes that marginal changes are infinitesimals or limits. One is therefore often told that marginal is synonymous with very small, the marginal utility of a good or service is the utility of its marginal use. Under the assumption of rationality, it is the utility of its least urgent possible use from the best feasible combination of actions in which its use is included. But marginalism and the concept of marginal utility predate the establishment of this convention within economics, in this context, it is not surprising to find many presentations that fail to recognize a more general approach. The law of diminishing marginal utility is that, ceteris paribus, as amounts of a good or service are added to available resources. This law is sometimes treated as a tautology, sometimes as something proven by introspection, or sometimes as a mere instrumental assumption, actually, it is not quite any of these things, though it may have aspects of each. The law does not hold under all circumstances, so it is neither a tautology nor otherwise proveable, an individual will typically be able to partially order the potential uses of a good or service. If there is scarcity, then an agent will satisfy wants of highest possible priority. He had five possible uses, as feed for himself, food to build strength, food for his chickens for dietary variation. Then the farmer lost one sack of grain, instead of reducing every activity by a fifth, the farmer simply starved the parrots as they were of less utility than the other four uses, in other words they were on the margin. And it is on the margin, and not with a view to the big picture, However, if there is a complementarity across uses, then an amount added can bring things past a desired tipping point, or an amount subtracted cause them to fall short. In such cases, the utility of a good or service might actually be increasing. Without the presumption that utility is quantified, the diminishing of utility should not be taken to be itself an arithmetic subtraction and it is the movement from use of higher to lower priority, and may be no more than a purely ordinal change
20.
Money
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The main functions of money are distinguished as, a medium of exchange, a unit of account, a store of value, and, sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money, Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money. Fiat money, like any check or note of debt, is without use value as a physical commodity. It derives its value by being declared by a government to be legal tender, the money supply of a country consists of currency and, depending on the particular definition used, one or more types of bank money. Bank money, which consists only of records, forms by far the largest part of money in developed countries. The word money is believed to originate from a temple of Juno, in the ancient world Juno was often associated with money. The temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located, the name Juno may derive from the Etruscan goddess Uni and Moneta either from the Latin word monere or the Greek word moneres. In the Western world, a prevalent term for coin-money has been specie, stemming from Latin in specie, meaning in kind. The use of methods may date back to at least 100,000 years ago. Instead, non-monetary societies operated largely along the principles of gift economy, when barter did in fact occur, it was usually between either complete strangers or potential enemies. Many cultures around the world eventually developed the use of commodity money, the Mesopotamian shekel was a unit of weight, and relied on the mass of something like 160 grains of barley. The first usage of the came from Mesopotamia circa 3000 BC. Societies in the Americas, Asia, Africa and Australia used shell money – often, according to Herodotus, the Lydians were the first people to introduce the use of gold and silver coins. It is thought by scholars that these first stamped coins were minted around 650–600 BC. The system of commodity money eventually evolved into a system of representative money and this occurred because gold and silver merchants or banks would issue receipts to their depositors – redeemable for the commodity money deposited. Eventually, these became generally accepted as a means of payment and were used as money. Paper money or banknotes were first used in China during the Song Dynasty and these banknotes, known as jiaozi, evolved from promissory notes that had been used since the 7th century. However, they did not displace commodity money, and were used alongside coins, in the 13th century, paper money became known in Europe through the accounts of travelers, such as Marco Polo and William of Rubruck
21.
Private property
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Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property, which is owned by an entity, and from collective property. Private property is distinguished from personal property, which refers to property for personal use. Private property is a concept defined and enforced by a countrys political system. Prior to the 18th century, English-speakers generally used the property in reference to land ownership. In England, property did not have a legal definition until the 17th century, private property as commercial property was invented with the great European trading companies of the 17th century. John Locke, in arguing against supporters of monarchy, conceptualized property as a natural right that God had not bestowed exclusively on the monarchy. Influenced by the rise of mercantilism, Locke argued that property was antecedent to. Locke distinguished between common property, by which he meant open-access property, and property in goods and producer-goods. His chief argument for property in land was improved land management, smith confined natural rights to liberty and life. Smith further argued that government could not exist without property. Economic liberals consider private property to be essential for the construction of a prosperous society and they believe private ownership of land ensures the land will be put to productive use and its value protected by the landowner. If the owners must pay property taxes, this forces the owners to maintain a productive output from the land to keep taxes current, private property also attaches a monetary value to land, which can be used to trade or as collateral. Private property thus is an important part of capitalization within the economy, socialist economists are critical of private property as socialism aims to substitute private property in the means of production for social ownership or public property. Socialists generally favor social ownership either to eliminate the distinctions between owners and workers, and as a component of the development of a post-capitalist economic system. According to Mises, this problem would make rational socialist calculation impossible, in Marxian economics and socialist politics, there is distinction between private property and personal property. Prior to the 18th century, private property usually referred to land ownership, private property in the means of production is criticized by socialists, who use the term in a different meaning. The socialist critique of private ownership is heavily influenced by the Marxian analysis of capitalist property forms as part of its critique of alienation and exploitation in capitalism
22.
Profit (economics)
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Profit or normal profit is a component of costs and not a component of business profit at all. It represents the opportunity cost, as the time that the owner spends running the firm could be spent on running a different firm. In other words, the cost of normal profit varies both within and across industries, it is commensurate with the associated with each type of investment. Only normal profits arise in circumstances of perfect competition when long-run economic equilibrium is reached, the same is likewise true of the long run equilibria of monopolistically competitive industries and, more generally, any market which is held to be contestable. Normally, a firm that introduces a differentiated product can initially secure a temporary power for a short while. At this stage, the price the consumer must pay for the product is high. When this finally occurs, all monopoly associated with producing and selling the product disappears. Profit can, however, occur in competitive and contestable markets in the short run, economic profit is, however, much more prevalent in uncompetitive markets such as in a perfect monopoly or oligopoly situation. This allows the firm to set a price which is higher than that which would be found in a similar but more competitive industry, allowing them economic profit in both the long and short run. In a single-goods case, an economic profit happens when the firms average cost is less than the price of the product or service at the profit-maximizing output. The economic profit is equal to the quantity of output multiplied by the difference between the average cost and the price, often, governments will try to intervene in uncompetitive markets to make them more competitive. Antitrust or competition laws were created to prevent powerful firms from using their power to artificially create the barriers to entry they need to protect their economic profits. This includes the use of predatory pricing toward smaller competitors, with lower barriers, new firms can enter the market again, making the long run equilibrium much more like that of a competitive industry, with no economic profit for firms. For example, the old AT&T monopoly, which existed before the courts ordered its breakup, had to get government approval to raise its prices. Though a regulated firm will not have a profit as large as it would in an unregulated situation. The social profit from a firms activities is the normal profit plus or minus any externalities or consumer surpluses that occur in its activity, a firm may report relatively large monetary profits, but by creating negative externalities their social profit could be relatively small. Profitability is a term of economic efficiency, mathematically it is a relative index – a fraction with profit as numerator and generating profit flows or assets as denominator. It is a standard economic assumption that, other things being equal, given that profit is defined as the difference in total revenue and total cost, a firm achieves a maximum by operating at the point where the difference between the two is at its greatest
23.
Supply and demand
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In microeconomics, supply and demand is an economic model of price determination in a market. By contrast, responses to changes in the price of the good are represented as movements along unchanged supply, a supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition, supply is determined by marginal cost and that is, firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive. A hike in the cost of raw goods would decrease supply, shifting costs up, while a discount would increase supply, shifting costs down, by its very nature, conceptualizing a supply curve requires the firm to be a perfect competitor. This is true because each point on the curve is the answer to the question If this firm is faced with this potential price, how much output will it be able to. Economists distinguish between the curve of an individual firm and between the market supply curve. The market supply curve is obtained by summing the quantities supplied by all suppliers at each potential price, thus, in the graph of the supply curve, individual firms supply curves are added horizontally to obtain the market supply curve. Economists also distinguish the market supply curve from the long-run market supply curve. In this context, two things are assumed constant by definition of the run, the availability of one or more fixed inputs. In the long run, firms have a chance to adjust their holdings of physical capital, furthermore, in the long run potential competitors can enter or exit the industry in response to market conditions. For both of these reasons, long-run market supply curves are generally flatter than their short-run counterparts, the determinants of supply are, Production costs, how much a goods costs to be produced. Production costs are the cost of the inputs, primarily labor, capital, energy and they depend on the technology used in production, and/or technological advances. Following the law of demand, the curve is almost always represented as downward-sloping, meaning that as price decreases. Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves, the demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time. It is aforementioned, that the curve is generally downward-sloping. Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods, by its very nature, conceptualizing a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is true because each point on the curve is the answer to the question If this buyer is faced with this potential price. If a buyer has market power, so its decision of how much to buy influences the price, then the buyer is not faced with any price
24.
Surplus value
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Surplus value is a central concept in Karl Marxs critique of political economy. Marx did not himself invent the term, he developed the concept, surplus value is a translation of the German word Mehrwert, which simply means value added. Conventionally, value-added is equal to the sum of gross wage income, hence, Marxs use of Mehrwert has always been translated as surplus value, distinguishing it from value-added. According to Marxs theory, surplus value is equal to the new value created by workers in excess of their own labor-cost, which is appropriated by the capitalist as profit when products are sold. To the extent that increasingly the economic surplus is convertible into money and expressed in money, the problem of explaining the source of surplus value is expressed by Friedrich Engels as follows, Marxs solution was to distinguish between labor-time worked and labor power. A worker who is sufficiently productive can produce a value greater than what it costs to hire him. Although his wage seems to be based on hours worked, in a sense this wage does not reflect the full value of what the worker produces. Effectively it is not labour which the worker sells, but his capacity to work, imagine a worker who is hired for an hour and paid $10. Once in the capitalists employ, the capitalist can have him operate a machine with which the worker produces $10 worth of work every fifteen minutes. Every hour, the capitalist receives $40 worth of work and only pays the worker $10, once the capitalist has deducted fixed and variable operating costs of $20, he is left with $10. Thus, for an outlay of capital of $30, the capitalist obtains a value of $10, his capital has not only been replaced by the operation. Hence the rise of unions which aim to create a more favourable bargaining position through collective action by workers. Of course, the way generic profit income is grossed and netted in social accounting may differ somewhat from the way a business does that. Marxs own discussion focuses mainly on profit, interest and rent, largely ignoring taxation, over the last 150 years, however, the role of the state in the economy increased in almost every country in the world. In production, he argues, the produce a value equal to their wages plus an additional value. They also transfer part of the value of fixed assets and materials to the new product, equal to economic depreciation, labor costs and surplus-value are the monetary valuations of what Marx calls the necessary product and the surplus product, or paid labour and unpaid labour. In the whole economy, this include both income directly from production and property income. In this context, surplus value can also be measured as the increase in the value of the stock of assets through an accounting period
25.
Wage labour
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Wage labour is the socioeconomic relationship between a worker and an employer, where the worker sells his or her labour power under a formal or informal employment contract. These transactions usually occur in a market where wages are market determined. A wage labourer is a person whose primary means of income is from the selling of his or her power in this way. In modern mixed economies such as those of the OECD countries, the most common form of wage labour currently is ordinary direct, or full-time. However, wage labour takes many forms, and explicit as opposed to implicit contracts are not uncommon. Economic history shows a variety of ways, in which labour is traded and exchanged. The differences show up in the form of, Employment status – a worker could be employed full-time, part-time and he or she could be employed for example temporarily for a specific project only, or on a permanent basis. Part-time wage labour could combine with part-time self-employment, the worker could be employed also as an apprentice. So the labour might be performed on a more or less voluntary basis, or on a more or less involuntary basis, in which there are many gradations. Method of payment – The work done could be paid in cash or in kind, in some cases, the worker might be paid in the form of credit used to buy goods and services, or in the form of stock options or shares in an enterprise. Method of hiring – the worker might engage in a labour-contract on his or her own initiative, but he or she may also hire out their labour via an intermediary to a third party. In this case, he or she is paid by the intermediary, in some cases, labour is subcontracted several times, with several intermediaries. Another possibility is that the worker is assigned or posted to a job by a political authority, many Socialists see wage labour as a major, if not defining, aspect of hierarchical industrial systems. Most opponents of the institution support worker self-management and economic democracy as alternatives to wage labour and to capitalism. As some opponents of wage labour take influence from Marxist propositions, many are opposed to private property, wage labour has long been compared to slavery by socialists. As a result, the wage slavery is often utilised as a pejorative for wage labour. According to Noam Chomsky, analysis of the implications of wage slavery goes back to the Enlightenment era. Both the Milgram and Stanford experiments have been useful in the psychological study of wage-based workplace relations
26.
Mercantilism
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Mercantilism was an economic theory and practice that was dominant in Western Europe during the 15th to the mid-18th centuries. Mercantilism is a form of economic nationalism and its goal is to enrich and empower the nation and state to the maximum degree, by acquiring and retaining as much economic activity as possible within the nations borders. Manufacturing and industry, particularly of goods with military applications, were prioritized, Mercantilism sought to ensure the nation produced as much volume and variety of output as possible, so as to limit its dependence upon foreign suppliers. Economic autarky was an element of mercantilism. These aims were primarily accomplished by, Imposing high tariffs on the importation of finished goods, Imposing low, or no taxes on the export of finished goods, and imposing high taxes on the exportation of raw materials. Seeking new markets for manufactured products, so as to artificially increase the demand for domestic production. These policies generally resulted in a balance of trade, which led to the accumulation of precious metals. Historically, such policies sometimes led to war and may have motivated colonial expansion, high tariffs, especially on manufactured goods, are an almost universal feature of mercantilist policy. Mercantilism has been linked to bullionism ever since Adam Smith made the accusation, however, due to the fact that no author self-consciously used the label to refer to their own thoughts mercantilist authors can only be identified retrospectively. It is the supply of things necessary for life and suitable for clothing, the core of mercantile policy was a coherent national industrial policy, which was aimed at generating as much material wealth within the nation as possible. Doing so, it was thought, was the best way to increase the states military, the term mercantile system was used by its foremost critic, Adam Smith, but mercantilism had been used earlier by Mirabeau. Many nations applied the theory, one example being France which was the most important state economically in Europe at the time. King Louis XIV followed the guidance of Jean Baptiste Colbert, his general of finances. Mercantilism was the dominant school of thought in Europe throughout the late Renaissance. Evidence of mercantilistic practices appeared in early modern Venice, Genoa, however, as a codified school of economic theories, mercantilisms real birth was marked by the empiricism of the Renaissance, which first began to quantify large-scale trade accurately. England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era, queen Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping. It was written in the 1620s and published in 1664, numerous French authors helped cement French policy around mercantilism in the 17th century. This French mercantilism was best articulated by Jean-Baptiste Colbert, though policy liberalised greatly under Napoleon, in Europe, academic belief in mercantilism began to fade in the late 18th century, especially in Britain, in light of the arguments of Adam Smith and the classical economists
27.
Nordic model
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The Nordic model refers to the economic and social policies common to the Nordic countries. This includes a combination of market capitalism with a comprehensive welfare state. The Nordic model began to earn attention after World War II, although there are significant differences among the Nordic countries, they all share some common traits. Each of the Nordic countries has its own economic and social models, the United Nations World Happiness Report 2013 shows that the happiest nations are concentrated in Northern Europe. The Nordics ranked highest on the metrics of real GDP per capita, healthy life expectancy, having someone to count on, perceived freedom to make choices, generosity. Strong property rights, contract enforcement, and overall ease of doing business and this is combined with collective risk sharing which has provided a form of protection against the risks associated with economic openness. Nordic countries rank very high in product market freedom according to OECD rankings, in Transparency Internationals 2015 Corruption Perceptions Index, Denmark, Finland, Sweden, and Norway were ranked among the top 10 least corrupt of the 167 countries evaluated. High percentage of workers belonging to a labour union, in 2013, labour union density was 85. 5% in Iceland, 69% in Finland,67. 7% in Sweden,66. 8% in Denmark, and 52. 1% in Norway. In comparison, labour union density was 13. 6% in Mexico and 10. 8% in the United States, the lower union density in Norway is mainly explained by the absence of a Ghent system since 1938. In contrast, Denmark, Finland and Sweden all have union-run unemployment funds, Sweden has decentralised wage co-ordination, while Finland is ranked the least flexible. The changing economic conditions have given rise to fear among workers as well as resistance by trade unions in regards to reforms, at the same time, reforms and favourable economic development seem to have reduced unemployment, which has traditionally been higher. Denmarks Social Democrats managed to push reforms in 1994 and 1996. Sweden at 56. 6% of GDP, Denmark at 51. 7%, one key reason for public spending is the large number of public employees. These employees work in fields including education, healthcare. They often have lifelong job security and make up around a third of the workforce, public spending in social transfers such as unemployment benefits and early-retirement programmes is high. In 2001, the unemployment benefits were around 90% of wage in Denmark and 80% in Sweden, compared to 75% in the Netherlands. The unemployed were also able to receive several years before reductions. Public expenditure for health and education is higher in Denmark, Sweden
28.
Social market economy
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It is sometimes classified as a coordinated market economy. The social market economy was originally promoted and implemented in West Germany by the Christian Democratic Union under Chancellor Konrad Adenauer in 1949 and its origins can be traced to the interwar Freiburg school of economic thought. The social market economy was designed to be a way between laissez-faire economic liberalism and socialist economics. It was strongly inspired by ordoliberalism and the tradition of Catholic social teaching or, more generally, some authors use the term social capitalism with roughly the same meaning as social market economy. It is also called Rhine capitalism, typically when contrasting it with the Anglo-Saxon model of capitalism, rather than see it as an antithesis, some authors describe Rhine capitalism as successful synthesis of the Anglo-American model with social democracy. A2012 comparative politics textbook distinguishes however between the conservative-corporatist welfare state and the social democratic welfare state. Social market economies aim to combine free initiative and social welfare on the basis of a competitive economy, the term social was established by Adenauer to prevent further reference to christian Socialism, which was used in the early party agenda Ahlener Programm in 1947. In putting social policy on par with economic policy, Müller-Armack’s concept was more emphatic regarding socio-political aims than the economic concept. This dual principle also appeared in the name of the model, furthermore, various Third Way conceptions prepared the ground for the socio-economic concept. This desirable order of freedom and equality was labelled by a later publication entitled Weder so – noch so. In his opinion the term was tainted, reminding him too much about ideas of a mixed economy and he vehemently and consistently argued against the view that models were converging. Further, in contrast to Müller-Armack who emphasised the social aspect, by proclaiming the freer an economy is, the more social it is, Erhard once told Friedrich Hayek that the free market economy did not need to be made social but was social in its origin. Ludwig Erhard was rather inclined to Walter Eucken’s ordoliberal competitive market order, although he even considered himself an ordoliberal, Erhard based his economic conception neither on Eucken nor on Müller-Armack. In fact, his doctoral supervisor Franz Oppenheimer and especially Wilhelm Röpke, like Erhard a student of Oppenheimer, was his source of inspiration, Erhard perceived Röpke’s books as works of revelation and considered the economist a brother in spirit. For instance, Müller-Armack stressed that by more socialism he meant the social engagement for, equally, Ludwig Erhard pointed out that the principles of the social market economy could only be achieved if the public was determined to give them priority. They share an involvement in the Anti-Nazi Opposition, whose search for an order for Germany is an important background for the development of this concept. Michel Albert described a concept, Rhine capitalism. While the neo-American model builds largely on the ideas of Friedrich von Hayek and Milton Friedman, Rhine capitalism, Albert analyzes the Rhenish model as the more equitable, efficient, and less violent one
29.
State capitalism
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The term is also used by some in reference to a private capitalist economy controlled by a state, often meaning a privately owned economy that is subject to statist economic planning. This term was used to describe the controlled economies of the Great Powers in the First World War. This practice is claimed to be in contrast with the ideals of both socialism and laissez-faire capitalism. There are various theories and critiques of capitalism, some of which have existed before the 1917 October Revolution. Vladimir Lenin notably described the economy of Russia as state capitalism and he argued that the tools for ending capitalism are found in state capitalism. For anarchists, state socialism is equivalent to state capitalism, hence oppressive and merely a shift from private capitalists to the state being the sole employer, after the October Revolution, Lenin used the term positively. If in a space of time we could achieve state capitalism. State capitalism would be a forward as compared with the present state of affairs in our Soviet Republic. Lenin argued the state should temporarily run the economy, which would eventually be taken over by workers, to Lenin state capitalism did not mean the state would run most of the economy, but that state capitalism would be one of five elements of the economy. The term state capitalism has been used by various socialists, including anarchists, Marxists, perhaps the earliest critique of the USSR as state-capitalist was formulated by the Russian anarchists, as documented in Paul Avrichs work on Russian anarchism. This claim would become standard in anarchist works. Soviet Russia, it must now be obvious, is an absolute despotism politically, murray Bookchin, when speaking about Marxism said that Marxism, in fact, becomes ideology. It is assimilated by the most advanced forms of state capitalist movement—notably Russia, by an incredible irony of history, Marxian “socialism” turns out to be in large part the very state capitalism that Marx failed to anticipate in the dialectic of capitalism. This is a statement if one thinks out its implications. At worse, these parties can seize power and create a new form of society in which the working class is oppressed by new bosses. Another early analysis the USSR as state capitalist came from various groups advocating left communism, one major tendency of the 1918 Russian communist left criticised the re-employment of authoritarian capitalist relations and methods of production. In sum these measures were seen as the re-transformation of proletarians within production from collective subject back into the objects of capital. The working class, it was argued, had to participate consciously in economic as well as political administration and this tendency within the 1918 left communists emphasized that the problem with capitalist production was that it treated workers as objects. Its transcendence lay in the workers conscious creativity and participation, which is reminiscent of Marxs critique of alienation and these criticisms were revived on the left of the Russian Communist Party after the 10th Congress in 1921, which introduced the New Economic Policy
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Welfare capitalism
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Welfare capitalism is capitalism that includes social welfare policies. Welfare capitalism is also the practice of businesses providing services to their employees. Welfare capitalism in this sense, or industrial paternalism, was centered on industries that employed skilled labor. Today, welfare capitalism is most often associated with the models of capitalism found in Continental and Northern Europe, such as the Nordic model, social market economy, in the 19th century, some companies—mostly manufacturers—began offering new benefits for their employees. This began in Britain in the early 19th century and also occurred in other European countries, including France and these companies sponsored sports teams, established social clubs, and provided educational and cultural activities for workers. Welfare corporatism in the United States developed during the industrial development of 1880 to 1900 which was marked by labor disputes and strikes. One of the first attempts at offering philanthropic welfare to workers was made at the New Lanark mills in Scotland by the social reformer Robert Owen, the general condition of the people was very unsatisfactory. Many of the workers were steeped in theft and drunkenness, and other vices were common, education and sanitation were neglected, the respectable country people refused to submit to the long hours and demoralising drudgery of the mills. Many employers also operated the system, whereby payment to the workers was made in part or totally by tokens. These tokens had no value outside the mill owners truck shop, the owners were able to supply shoddy goods to the truck shop and charge top prices. A series of Truck Acts eventually stopped this abuse, by making it a not to pay employees in common currency. Owen opened a store where the people could buy goods of sound quality at more than wholesale cost. He sold quality goods and passed on the savings from the purchase of goods to the workers. These principles became the basis for the stores in Britain that continue to trade today. Owens schemes involved considerable expense, which displeased his partners, tired of the restrictions on his actions, Owen bought them out in 1813. New Lanark soon became celebrated throughout Europe, with many leading royals, statesmen and they were astonished to find a clean, healthy industrial environment with a content, vibrant workforce and a prosperous, viable business venture all rolled into one. Owen’s philosophy was contrary to contemporary thinking, but he was able to demonstrate that it was not necessary for an enterprise to treat its workers badly to be profitable. Owen was able to show visitors the village’s excellent housing and amenities, boarding houses were built near the factories for the workers accommodation
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American School (economics)
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The American School, also known as the National System, represents three different yet related constructs in politics, policy and philosophy. It was the American policy from the 1860s to the 1970s, waxing and waning in actual degrees, historian Michael Lind describes it as a coherent applied economic philosophy with logical and conceptual relationships with other economic ideas. It is the philosophy that dominated United States national policies from the time of the American Civil War until the mid-twentieth century. Closely related to mercantilism, it can be seen as contrary to classical economics and it is a capitalist economic school based on the Hamiltonian economic program. The American School of capitalism was intended to allow the United States to become economically independent, the American Schools key elements were promoted by John Q. Adams and his National Republican Party, Henry Clay and the Whig Party, and Abraham Lincoln through the early Republican Party which embraced, implemented, and maintained this economic system. During its American System period the United States grew into the largest economy in the world with the highest standard of living, surpassing the British Empire by the 1880s. Frank Bourgins 1989 study of the Constitutional Convention shows that government involvement in the economy was intended by the Founders. A number of programs by the federal government undertaken in the prior to the Civil War gave shape. Leading proponents were economists Friedrich List and Henry Carey, List was a leading 19th Century German and American economist who called it the National System and developed it further in his book The National System of Political Economy. Carey called this a Harmony of Interests in his book by the same name, examples, Tariff Act of 1789, Tariff Act of 1816 and Morrill Tariff Create physical infrastructure, Government finance of internal improvements to speed commerce and develop industry. This involved the regulation of privately held infrastructure, to ensure that it meets the nations needs, examples, Cumberland Road and Union Pacific Railroad Create financial infrastructure, A government sponsored National Bank to issue currency and encourage commerce. This involved the use of powers for the regulation of credit to encourage the development of the economy. Examples, First Bank of the United States, Second Bank of the United States, rejection of class struggle, in favor of the Harmony of Interests between, owners and workers, farmer and manufacturers, the wealthy class and the working class. In a passage from his book, The Harmony of Interests, one looks to increasing the necessity of commerce, the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level, one looks to pauperism, ignorance, depopulation, and barbarism, the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war, the other towards universal peace, the Government issue of fiat paper money has also been associated with the American School from the 1830s onwards. The policy has roots going back to the days of the American Colonies, as early as 1837, John C. Calhoun called for a debt-free currency issued and controlled by the Government
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Austrian School
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The Austrian School is a school of economic thought that is based on methodological individualism – the concept that social phenomena result from the motivations and actions of individuals. It originated in late-19th and early-20th century Vienna with the work of Carl Menger, Eugen Böhm von Bawerk, Friedrich von Wieser and it was methodologically opposed to the Prussian Historical School. Current-day economists working in this tradition are located in different countries. Austrians are likewise critical of mainstream economics, in 1883, Menger published Investigations into the Method of the Social Sciences with Special Reference to Economics, which attacked the methods of the Historical school. Gustav von Schmoller, a leader of the Historical school, responded with a review, coining the term Austrian School in an attempt to characterize the school as outcast. The label endured and was adopted by the adherents themselves, the school originated in Vienna, in the Austrian Empire. Carl Mengers 1871 book, Principles of Economics, is considered the founding of the Austrian School. The book was one of the first modern treatises to advance the theory of marginal utility. The Austrian School was one of three founding currents of the marginalist revolution of the 1870s, with its major contribution being the introduction of the subjectivist approach in economics. ”Mengers contributions to economic theory were closely followed by those of Böhm-Bawerk and Friedrich von Wieser. These three economists became what is known as the first wave of the Austrian School, several important Austrian economists trained at the University of Vienna in the 1920s and later participated in private seminars held by Ludwig von Mises. These included Gottfried Haberler, Friedrich Hayek, Fritz Machlup, Karl Menger, Oskar Morgenstern, Paul Rosenstein-Rodan Abraham Wald, by the mid-1930s, most economists had embraced what they considered the important contributions of the early Austrians. Fritz Machlup quoted Hayeks statement, the greatest success of a school is that it stops existing because its teachings have become parts of the general body of commonly accepted thought. Mises student, Israel Kirzner recalled that in 1954, when Kirzner was pursuing his PhD, after the 1940s, Austrian economics can be divided into two schools of economic thought, and the school split to some degree in the late 20th century. Henry Hazlitt wrote economics columns and editorials for a number of publications, hazlitts thinking was influenced by Mises. His book Economics in One Lesson sold over a million copies, and he is known for The Failure of the New Economics. Hayeks work was influential in the revival of laissez-faire thought in the 20th century, according to economist Bryan Caplan, by the late twentieth century, a split had developed among those who self-identify with the Austrian School. Caplan wrote that if Mises and Rothbard are right, then economics is wrong, Austrian economist Walter Block says that the Austrian school can be distinguished from other schools of economic thought through two categories – economic theory and political theory. However, both criticisms from Hoppe and Block to Hayek seem to apply to the founder of the Austrian School, Carl Menger, Hoppe emphasizes that Hayek, which for him is from the English empirical tradition, is an opponent of the supposed rationalist tradition of the Austrian School
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Chicago school of economics
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In the context of macroeconomics, it is connected to the freshwater school of macroeconomics, in contrast to the saltwater school based in coastal universities. Chicago macroeconomic theory rejected Keynesianism in favor of monetarism until the mid-1970s, the freshwater-saltwater distinction is largely antiquated today, as the two traditions have heavily incorporated ideas from each other. Other economists affiliated with Chicago have made their impact in fields as diverse as social economics, thus, there is not a clear delineation of the Chicago school of economics, a term that is more commonly used in the popular media than in academic circles. They met together in frequent intense discussions that helped set a group outlook on economic issues, the 1950s saw the height of popularity of the Keynesian school of economics, so the members of the University of Chicago were considered outside the mainstream. Nonetheless, these scholars had an important influence on the thought of Milton Friedman and George Stigler, most notably in the development of price theory, however, their relationship to the modern macroeconomists, led by Robert Lucas, Jr. and Eugene Fama, is more blurred. A further significant branching of Chicago thought was dubbed by George Stigler as Chicago political economy and his work was originally focused in labor economics. His work partly inspired the popular economics book Freakonomics and he is considered one of the founding fathers of Chicago political economy. Ronald Coase was the most prominent economic analyst of law and the 1991 Nobel Prize-winner and his first major article, The Nature of the Firm, argued that the reason for the existence of firms is the existence of transaction costs. Rational individuals trade through bilateral contracts on open markets until the costs of transactions mean that using corporations to produce things is more cost-effective, only the existence of transaction costs may prevent this. So, the law ought to pre-empt what would happen, the idea is that law and regulation are not as important or effective at helping people as lawyers and government planners believe. Coase and others like him wanted a change of approach, to put the burden of proof for positive effects on a government that was intervening in the market, by analysing the costs of action. Eugene Fama is an American financial economist who was awarded the Nobel Prize in Economics in 2013 for his work on asset pricing and is the seventh most highly cited economist of all time. In his tract, Railroads and American Economic Growth, Essays in Econometric History, Milton Friedman stands as one of the most influential economists of the late twentieth century. A student of Frank Knight, he won the Nobel Prize in Economics in 1976 for, among other things, Friedman argued that the Great Depression had been caused by the Federal Reserves policies through the 1920s, and worsened in the 1930s. Friedman argued that government policy is more desirable than government intervention in the economy. One of the great mistakes is to judge policies and programs by their intentions rather than their results, governments should aim for a neutral monetary policy oriented toward long-run economic growth, by gradual expansion of the money supply. He advocated the quantity theory of money, that general prices are determined by money, therefore, active monetary or fiscal policy can have unintended negative effects. The slogan that money matters has come to be associated with Friedman, lars Peter Hansen is an American economist who won the Nobel Prize in Economics in 2013 with Eugene Fama and Robert Shiller for their work on asset pricing
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Classical economics
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Classical economics asserts that markets function best with minimal government interference. It was developed in the late 18th and early 19th century by Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, many writers found Adam Smiths idea of free markets more convincing than the idea, widely accepted at the time, of protectionism. Adam Smiths The Wealth of Nations in 1776 is usually considered to mark the beginning of classical economics, Classical economics originally differed from modern libertarian economics in seeing a role for the state in providing for the common good. Classical economists observe that markets generally regulate themselves, when free of coercion, Adam Smith referred to this as a metaphorical invisible hand, which refers to the notion that private incentives are aligned with society welfare maximization under certain competitive conditions. Smith warned repeatedly of the dangers of monopoly, and stressed the importance of competition, there is some debate about what is covered by the term classical economics, particularly when dealing with the period from 1830–75, and how classical economics relates to Neoclassical economics. These changes raised the question of how a society could be organized around a system in every individual sought his or her own gain. Classical political economy is popularly associated with the idea that markets can regulate themselves. Classical economists and their immediate predecessors reoriented economics away from an analysis of the personal interests to broader national interests. Adam Smith, and also physiocrat François Quesnay, for example, identified the wealth of a nation with the national income. Smith saw this income as produced by labour, land, with property rights to land and capital held by individuals, the national income is divided up between labourers, landlords, and capitalists in the form of wages, rent, and interest or profits. Henry George is sometimes known as the last classical economist or as a bridge, other ideas, however, have either disappeared from neoclassical discourse or been replaced by Keynesian economics in the Keynesian Revolution and neoclassical synthesis. Analyzing the growth in the wealth of nations and advocating policies to promote such growth was a focus of most classical economists. However, John Stuart Mill believed that the stationary state of a constant population size. John Hicks & Samuel Hollander, Nicholas Kaldor, Luigi L. Pasinetti, Classical economists developed a theory of value, or price, to investigate economic dynamics. In political economics, value usually refers to the value of exchange, william Petty introduced a fundamental distinction between market price and natural price to facilitate the portrayal of regularities in prices. Market prices are jostled by many transient influences that are difficult to theorize about at any abstract level, natural prices, according to Petty, Smith, and Ricardo, for example, capture systematic and persistent forces operating at a point in time. Market prices always tend toward natural prices in a process that Smith described as similar to gravitational attraction. The theory of what determined natural prices varied within the Classical school, Petty tried to develop a par between land and labour and had what might be called a land-and-labour theory of value
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Institutional economics
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Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblens instinct-oriented dichotomy between technology on the one side and the sphere of society on the other. Its name and core elements trace back to a 1919 American Economic Review article by Walton H. Hamilton, Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions. The earlier tradition continues today as a leading heterodox approach to economics, a significant variant is the new institutional economics from the later 20th century, which integrates later developments of neoclassical economics into the analysis. Law and economics has been a theme since the publication of the Legal Foundations of Capitalism by John R. Commons in 1924. Since then, there is heated debate on the role of law on economic growth, Behavioral economics is another hallmark of institutional economics based on what is known about psychology and cognitive science, rather than simple assumptions of economic behavior. Institutional economics focuses on learning, bounded rationality, and evolution and it was a central part of American economics in the first part of the 20th century, including such famous but diverse economists as Thorstein Veblen, Wesley Mitchell, and John R. Commons. Traditional institutionalism rejects the reduction of institutions to simply tastes, technology, tastes, along with expectations of the future, habits, and motivations, not only determine the nature of institutions but are limited and shaped by them. If people live and work in institutions on a regular basis, some of the authors associated with this school include Robert H. Wright Mills was highly influenced by the institutionalist approach in his major studies. Thorstein Veblen wrote his first and most influential book while he was at the University of Chicago, in it he analyzed the motivation in capitalism to conspicuously consume their riches as a way of demonstrating success. Conspicuous leisure was another focus of Veblens critique, the concept of conspicuous consumption was in direct contradiction to the neoclassical view that capitalism was efficient. Output and technological advance are restricted by business practices and the creation of monopolies, businesses protect their existing capital investments and employ excessive credit, leading to depressions and increasing military expenditure and war through business control of political power. These two books, focusing on criticism first of consumerism, and second of profiteering, did not advocate change, Veblen remains a leading critic, which cautions against the excesses of the American way. Thorstein Veblen wrote in 1898 an article entitled Why is Economics Not an Evolutionary Science, John R. Commons also came from mid-Western America. Underlying his ideas, consolidated in Institutional Economics was the concept that the economy is a web of relationships between people with diverging interests, there are monopolies, large corporations, labour disputes and fluctuating business cycles. They do however have an interest in resolving these disputes, Commons thought that government should be the mediator between the conflicting groups. Commons himself devoted much of his time to advisory and mediation work on government boards, Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades. Mitchell’s teachers included economists Thorstein Veblen and J. L. Laughlin, clarence Ayres was the principal thinker of what some has called the Texas school of institutional economics
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Keynesian economics
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Keynesian economics are the various theories about how in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand. Keynes contrasted his approach to the aggregate supply-focused classical economics that preceded his book, the interpretations of Keynes that followed are contentious and several schools of economic thought claim his legacy. Keynesian economists generally argue that, as demand is volatile and unstable. Keynesian economists often advocate a role for government intervention during recessions. The advent of the crisis of 2007–08 caused a resurgence in Keynesian thought. This argument rests upon the assumption that if a surplus of goods or services exists and he saw the economy as unable to maintain itself at full employment and believed that it was necessary for the government to step in and put under-utilized savings to work through government spending. Keynes argued that when a glut occurred, it was the over-reaction of producers, Keynesians therefore advocate an active stabilization policy to reduce the amplitude of the business cycle, which they rank among the most serious of economic problems. According to the theory, government spending can be used to aggregate demand, thus increasing economic activity, reducing unemployment. A principle function of banks in countries which have them is to influence this interest rate through a variety of mechanisms which are collectively called monetary policy. This is how monetary policy which reduces interest rates is thought to stimulate economic activity, i. e. grow the economy, expansionary fiscal policy consists of increasing net public spending, which the government can effect by a) taxing less, b) spending more, or c) both. Investment and consumption by government raises demand for products and for employment. If desired spending exceeds revenue, the government finances the difference by borrowing from capital markets by issuing government bonds, two points are important to note at this point. First, deficits are not required for expansionary fiscal policy, and second, for example, if a government ran a deficit of 10% both last year and this year, this would represent neutral fiscal policy. In fact, if it ran a deficit of 10% last year and 5% this year, this would actually be contractionary. On the other hand, if the government ran a surplus of 10% of GDP last year and 5% this year, the purpose of Keynes theory was to show such conditions could, without intervention, persist in a stable, though dismal, equilibrium. By the end of the Second World War, Keynesianism was the most popular school of economic theory in the non-Communist world. Beginning in the late 1960s, a new classical macroeconomics movement arose, critical of Keynesian assumptions and it was characterized by explicit and rigorous adherence to microfoundations, as well as use of increasingly sophisticated mathematical modelling. During the Great Depression, the classical theory attributed mass unemployment to high, to Keynes, the determination of wages was more complicated
