economic essays with some blanks quastions ( REVIEW _ MIDTERM)
naif
451_lecture_7_2014.pdf
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Institutional Economic Theory
Economics 451
University of Missouri-Kansas City
Production theory
Distinction between: Output alternatives and production theory O = L, L, K, or different combinations of Labor & Capital P = ? What is the nature of these factors Theory of Resources Evolution of production - history of technology/knowledge How does production increase/decrease Organization of Production What is produced Path Dependence
Resources as a Dynamic Process
MAN
ABILITIES Knowledge
arts & sciences
WANTS Including cultural
wants
man Resources CULTURE NATURE
“Factors of Production” Institutional Approach Standard Approach Nature Land Machines Capital Work/Energy Labor
The idea of cost—individual costs sum up to total cost – as measured by land, labor, capital
Standard theory of production is based in ideology:
Factors of production – not a theory of production, but a distributive formula and rationale.
Classical price theory is a postulation of how prices have to move in order to maintain the status arrangements.
Production is linked to income. In movement from Agricultural based economy to industrial based:
A shift in power from land to capital But when land not basis of production or control of production, but rather “labor” and “capital” then ownership becomes less tangible.
Marx grasps this problem and argues for ownership of labor by labor – Natural Right – his argument for communal ownership is based on Natural Right of labor to the product of its effort (labor power).
Abramowitz finds 90 % of growth not due to land, labor & capital, i.e. the conventional factors of production. Denison finds that growth in production is due to the following:
Education 40.0% Know how .92 Labor hrs .87 Labor qual .36 Resource allo .30 Scale .36 Total 42.8% Residual 57.2
What is residual ?
Institutional Production theory and the Veblenian Dichotomy Creative forces— Instrumental Knowledge – idle curiosity Workmanship Permissive forces-- Ceremonial Prosperity Codes resistances inhibitory forces
Institutions P = I x C
Institutionalists – Tools – Joint Stock of Knowledge
Institutions such as patents – physical tools, copyright for ideas emerge as important in production process
Market mentality – ownership business enterprise free enterprise business as money making?
Production for market leads to problems, e.g., vendibility serviceability.
The idea that money-making, any money-making by anybody, does not by itself properly confront all human problems, is a freshly upsetting notion for our leading groups.” David Bazelon The Paper Economy
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Economic History • Neolithic Period -‐-‐ (12-‐13K years ago)
– Se9led Life -‐-‐ Civiliza?on -‐-‐ Mesopotamia – First Agricultural Revolu?on
• Wheat and Water – Accumula?on
• Tools
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Wheat Emmer --
Bread Wheat Goat Grass
Contemporary Bread Wheat
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Water • The Fer?le Crescent • Mesopotamia
– Iraq – Turkey – Syria
• The Tigris & Euphrates Rivers
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Economic History • Medieval Era (500 – 1400 AD)
– Feudalism -‐-‐ Western Europe – Second Agricultural Revolu?on (900 -‐ 1500 AD)
• S?rrup • Horse Collar
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Economic History • Medieval Era (500 – 1400 AD)
– Feudalism -‐-‐ Western Europe – Second Agricultural Revolu?on (900 -‐ 1500 AD)
• S?rrup • Horse Collar • Horse Power • Ver?cal Plow
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Modern Horse Collar
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Economic History n Medieval Era (500 – 1400 AD)
n Feudalism -- Western Europe n Second Agricultural Revolution (900 - 1500 AD)
n Stirrup n Horse Collar
n Horse Power n Vertical Plow
n 3 Field Crop Rotation
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Wheat - Year 1 Fallow - Year 2
Fallow - Year 1 Wheat - Year 2
Field one 300 acres Field two 300 acres
Wheat - year 1 Legume- year 2 Fallow – year 3
Legume-year 1 Fallow - year 2 Wheat - year 3
Fallow - year 1 Wheat - year 2
Legume - year 3
Field one 200 acres
Field two 200 acres
Field Three 200 acres
Two Field Crop Rotation
Three Field Crop Rotation
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Two field rotation Plowing 300 + (300 x 2) = 900 Acres Crop 300 Acres Ratio 300/900 = .33
Three field rotation Plowing 200 + 200 + (200 x 2) = 800 Acres Crop 400 Acres Ratio 400/800 = .50 How much new land can be brought into production with same amount of work?
A. 100 acres B. 50 acres C. 75 acres
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Economic History
n Scientific Revolution (1500 - 1700 AD) n Astronomy, Physics and Mathematics
n Industrial Revolution (circa 1750 AD) n Steam Engine
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Economic History
• Scien?fic Revolu?on (1500 -‐ 1700 AD) – Astronomy, Physics and Mathema?cs
• Industrial Revolu?on (circa 1750 AD) – Steam Engine – Lunar Society of Birmingham
• Third Agricultural Revolu?on (1794 – Present) – Iron Plow – John Deere was the inventor of the self-‐polishing cast steel
– Mechanical Reaper
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Scythe
Cradle
Cradles Cradles served as the next advancement in harvesting tools, taking a step up from sickles and scythes. The design of a cradle can be described as a multifingered scythe designed not only to cut, but also easily gather the cut grain or hay as it is being harvested. an experienced field hand using a cradle could harvest two acres of wheat a day and earn twice as much as other field laborers.
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Mechanical Reaper
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Wheat Threshing Contest
• Six men with flails -‐-‐ 60 liters of wheat • Belgian thresher -‐-‐ 150 • French thresher -‐-‐ 250 • English thresher -‐-‐ 410 • US thresher -‐-‐ 740
Paris Exhibition 1854
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Economic History • Industrial Revolu?on in the US
– Railroads – Steel – Interchangeable Parts – Electric Motor – Internal Combus?on Engine
• Modern Business Organiza?on – Trust – Holding Company – Business Corpora?on
• Stock as means of ownership and control
Institutions of business – How do they operate Example – Interconnectedness of the institutions of business enterprise logic, e.g., Insurance
Instrumental reason for insurance – ?? Ceremonial reasons Private property – financial accounting Financially feasibility – yields technological feasibility. The rationale is ceremonial because the insurance check can not “produce” a new car or build a new house.
Capital and its Accumulation
Capital accumulation and savings – what is relationship Standard theory – capital accumulation takes place through savings (consumption is sacrificed today to consume more in future) these savings are then used to add to capital stock instead of being consumed.
Distinguish between permissive forces – movie producer and creative forces capital as tools – plant & equipment capital as money – assets
Capital accumulation precedes saving
Keynes à S = f(Y) Institu. à K = f(JSK)
Organization of Production—Structure Structure – Organization
• Market • Planning
Dual Economy • Center – Key Industries • Periphery • Planning Sector • Market Sector
Market forces self-regulating – utopian managed – visible hand
Regulation Pubic—collective action wage/price controls : what are objectives/objections seen as government interference in market may be seen as a taking of property/property right who will impose controls – government – regulatory bodies Private – “individual” action may be problematic, e.g., Texas Railroad Commission Trade Associations Power elites Private standardization
Planning
types scope
Sector Type
Decentralized
Private
Decentralized Public
Decentralized Private
Centralized Private Centralized
Centralized Public
Public
A Taxonomy of Economic Planning
