History of Economic Thought
Economics 210
Study Questions # 1
Dr. Michele Naples
Spring 2002
1. Describe Kuhn’s paradigm approach to epistemology.
2. What is Kuhn's implicit and/or explicit critique of positivism?
3. Under what conditions is a scientific revolution possible or likely?
4. In what ways can economics be a science just as the natural sciences are? In what
ways is economics fundamentally different? What does it mean to be scientific within a
paradigm framework?
Study Questions # 2
1. a) What historical stages in economic development does Smith identify?
b) In what ways is the past very much like the present?
c) In what sense does Smith have a linear theory of historical progress, where each age is
a step higher than the last?
d) What moves history--what causes historical change for Smith?
2. What are Smith's criticisms of mercantilist thought, ie., why is he against efforts to
generate a surplus on the balance of payments?
3. Anlyze Smith's theory/ies of value:
a) What kind of “value” is Smith trying to explain?
b) Why does Smith choose a labor theory of value?
c) What are Smith’s 3 theories of value?
d) Describe contradictions among Smith's theory/ies of value--under what circumstances
do the different theories give different answers?
e) How can your knowledge of the historical development of capitalism help you explain
why Smith came up with these different, inconsistent answers?
Study Questions # 3
1. What is Adam Smith's theory of the distribution of income? What determines a)
wages, b) profits, c) rent? Specifically, will higher wages cause lower profits? Why or
why not?
2. What is Smith's theory of the falling rate of profit? Can anything counteract this
tendency to decline?
3. For Smith, what are the determinants of the rate of accumulation? What role does
saving play? What role does productive or unproductive employment play?
Study Questions # 4
1. Analyze Ricardo's theory/ies of value:
a) What is Ricardo trying to explain by "value"?
b) Why does Ricardo choose a labor theory of value?
c) Why and how does Ricardo's premise of an average rate of profit (i.e., profits
proportional to the capital stock) force him to modify his labor theory?
2. a) What is Ricardo's theory of wages in the short run?
b) What is Ricardo's theory of wages in the long run?
c) Will wages tend to rise with the expansion of capitalism or decine? How and why
does this differ from Smith’s views?
d) For Ricardo, what determines profits (in either the short or long run)?
3. Why does Ricardo reject utility and supply and demand as theories of value? What
criticisms does he make of those theories?
Study Questions # 5
1. a) What is Ricardo's theory of rent? Is Ricardo explaining absolute rent, differential
rent, or both?
b) Explain what causes rent to rise. What initially causes the rent increase, how are other
incomes affected?
c) What happens to the value of agricultural produce (corn)?
2. What is Ricardo's theory of why the profit rate tends to fall? What can counteract that
tendency?
3. Explain why Ricardo believes capital-intensive technical change may cause
unemployment. How does this contradict Say's Law that supply creates its own demand?
Study Questions # 6
1. Analyze Marx's theory of value:
a) What is Marx trying to explain by 'value'?
b) What determines the value of a good?
c) What is abstract labor?
d) What does socially necessary mean?
e) Why should there be a tendency in a commodity-producing economy for goods to sell
at value?
2. Marx argues that equal exchange and exploitation are both characteristics of the
capitalist mode of production. How can this be:
a) What is meant by equal exchange?
b) What is the distinction between labor and labor-power?
c) Define the value of labor-power.
d) What is the definition of exploitation (what is the rate of exploitation)?
e) For a firm to earn positive profits, what must the value added per worker be relative to
the value of labor-power?
Study Questions # 7
1. a) Why did Marx expect the accumulation process to lead to a fall in the profit rate?
Discuss the role of the organic composition of capital (C/V), the elements of C and V, the
wage, labor productivity, the process of adjustment throughout an industry to a new
technology and value.
b) How does crisis (recession, depression) restore conditions for renewed accumulation?
2. Okishio (1961) and Bortkiewicz (1907) argued that every change in production
technique must be profit-enhancing, otherwise no capitalist would implement the new
technology. How did Marx counter their claim? In words or by numerical example,
show why a technique that is initially profitable for the firm may in the long run be
unprofitable for both the firm and the industry.
3. a) For Marx, what is the general law of capitalist accumulation?
b) Why are business cycles endogenous to capitalism? [In your answer, explain what
causes a recession, what causes a cyclical upturn.]
c) Why is full employment, i.e., an unemployment rate of zero, impossible in capitalism?
Economics 210
Study Questions # 8
1. a) What was the subjectivist, marginalist theory of value that preceded Marshall?
b) What are they trying to explain by 'value'?
c) Why do they choose a utility theory of value?
c) Why is this a subjective as opposed to objective theory of value?
d) What criticisms of the labor theory of value do the marginalists advance?
2. What is Marshall's theory of value:
a) Why does Marshall argue that marginal utility and demand are inadequate for
understanding price or value?
b) What is behind the supply curve?
c) How does the objective cost of a good differ from its real subjective cost?
d) For what special case does Marshall's general model allow a pure marginal utility
theory to apply?
3. a) How does Marshall define the long run? What is given? What can change?
b) What happens to unit cost as firm output expands in the long run? Identify Marshall’s
categories of “returns,” explain each and what it would mean for the slope of the firm
supply curve.
c) What happens to entrepreneurial profits in the long run? Explain why.
Study Questions # 9
1. Analyze Marshall’s theory of wages:
a) What determines labor supplied? Explain.
b) What determines labor demanded? Explain.
c) What condition from the supply side and what condition from the demand side must be
met for the system to be in equilibrium?
d) Is Marshall’s theory of wages in/consistent with Marx’s? Explain.
2. Why does Marshall refer to short-run profits as quasi-rents?
3. Analyze Marshall’s theory of the rate of profit/interest in the long run:
a) Why is the supply of savings upward sloping?
b) Why is the demand for labor downward sloping?
c) In what way is the Marginalist approach to profits fundamentally different from the
classical approach of Smith, Ricardo and Marx?
4. What question(s) posed by the Classical economists are not central question(s) for
Marginalists?
Economics 210
Study Questions # 10
1. One of Marshall's innovations was partial-equilibrium analysis, i.e., studying the
movement towards equilibrium in an isolated market. Sraffa identified several theoretical
limits to partial-equilibrium.
a) Why is it, strictly speaking, illegitimate to study one market as if exogenous change
there had only a single effect?
2. Sraffa also clarified the consequences of economies of scale for industry supply in the
long run.
a) If a firm faced increasing returns to scale, what would this mean for industry supply?
Why?
b) If a firm faced constant returns to scale, what would this mean for
i) firm size, according to Sraffa?
ii) industry supply, according to Viner?
c) If a firm faced decreasing returns to scale, what would this mean for industry supply,
according to Sraffa and Pigou? What role would utility/demand play in the determination
of price over the long run for such an industry?
3. Empirical studies in the 1930s and 1940s (e.g., Joel Dean) challenged Marshall’s view
that short-run supply sloped upward, finding instead that cost curves were horizontal.
a) What problems does this present for the marginalist theory of short-run price?
b) What problems does this present for the marginalist theory of short-run wages?
c) How did Stigler, following Joan Robinson, justify rising costs and restore
marginalism?
Study Questions # 11
1. Evaluate Keynes's methodology:
a) How does his model of interest, employment, and money depend on the institutional
specifics of advanced capitalism? Which of his assumptions would have made no sense
in the 1865-1874 period?
b) In what way(s) is his methodology consistent with the marginalist approach?
c) How does he criticize analysis based on Marshallian supply and demand which
predicted that market processes would automatically eliminate unemployment?
2. a) For Keynes, what is the multiplier and what causes it?
b) Who decides how much to save? What determines the amount they save? What
motivates them to save?
c) What is wrong with the Marshallian theory of savings?
d) Who decides how much to invest? What 3 psychological states affect their willingness
to invest?
e) What is wrong with the Marshallian theory of investment, i.e., of the determination of
the demand for capital?
Study Questions # 12
l. For Keynes, what determines
a) the rate of interest?
b) the demand for liquidity/money? (Consider both households/ firms, and financiers.)
c) the availability of credit?
2. Identify and explain 2 criticisms of the marginalist (which he calls classical) theory of
the long-run interest rate/profit rate that Keynes provides.
3. For Keynes, how does the uncertainty of future events affect investment levels? What
are the links between the stock market and real investment? For Keynes, what causes the
(expected or actual) profit rate to fall?
4. What are the policy implications? What is to be done to prevent another depression?
Study Questions # 13
1. What is Joan Robinson’s criticism of the “classical” theory of capital and the long-run
profit rate/interest rate?
a) What is capital for the marginalists?
b) What determines the demand for capital?
c) What is capital for Robinson?
d) How does she criticize the marginalist story?
e) How did Solow and Samuelson backtrack in order to tell a story about the profit rate
which was internally consistent?
2. What is Sraffa's theory of value:
a) What is Sraffa trying to explain?
b) In what sense does Sraffa solve Ricardo's problem?
c) What question did Ricardo ask that Sraffa's model cannot answer?
3. What is Sraffa's theory of distribution:
a) What determines wages?
b) Where do profits come from?
c) What is the relationship between the wage rate and the profit rate?