Deel 2 history of economics vragen
Working group 5
1. What were the major tenets of the Historical school? Why did it emerge in Germany?
The major tenets of the Historical school are:
Evolutionary approach to economics
Positive role of the state
Holism
Against laissez-faire
Emphasis on social reform (common for Historical school and institutionalism)
The historical school emerged in Germany, because of the relative economic backwardness of the country
in comparison to big economies like France and Great Britain in the mid-late 1800’s. Moreover,
nationalism, militarism and paternalism did also contribute to the emerge of the historical school.
Friedrich List (1789-1846): Founder of the historical school
Against internal, intra-national trade restrictions. Advocate of a strong internal market.
Against free trade for underdeveloped countries. Infant industry argument: develop internal market
irst. Trade doesn’t always benefit two parties. The advanced nation can exploit the other nation.
Free trade only works if the market is mature, otherwise regulations are needed.
For national unification – and for building infrastructure
Active government involvement in economic development
2. Cite the polar positions in the Methodenstreit (Battle of Methods). How did economists
eventually resolve this issue?
The polar positions in the Methodenstreit (Battle of Methods):
German Historical school Austrian school
Economics is.. A descriptive inquiry into An analysis of the pure logic
the historically specific of rational economic
institutions and practices behavior
Role of history Primary Secondary
Role of context and culture Primary Secondary
Appropriate method Induction: from the Deduction: from the
concrete to the abstract abstract to the concrete
Result of economic A set of analyses of An abstract deductive
research? particular economic theory of economic
conditions specific to time rationality, its principles and
and place. implications
In the end of the Methodenstreit seemed to resolve itself into the belief that both inductive and deductive
methods are important and that they normally supplement eachother. In other words, the gathering of
information and the establishing of analytical tools with which to handle the accumulated information are
both instrumental parts of sound economic science.
3. Discuss the concepts of 'leisure class', 'conspicuous consumption', and 'instinct of
workmanship' in Thorstein Veblen. Why did Veblen criticize neoclassical economics?
Thorstein Vebleh (1857-1929): founder of institutionalism
1
, Central topic is conspicuous consumption. That means consuming in ways to display wealth, in contrast to
deriving utility. The demand curve is upward sloping, because as the price increasing it is more effective to
use to display wealth. Exampel of Veblen good is Brick Supreme.
The leisure class (aristocrats) engages in conspicuous consumption. They avoid useful work, for example
they have long fingernails so that is a sign to remain reputable. They are also conservative because they
are harboring sheltered beliefs to slow down social change and maintain current institutions.
Instinct of workmanship: people do not hate to work but enjoy achievement. In other words: we do not
want to avoid work inherently, but we want to feel some agency over what we do in the workplace – to
see that it contributes to some nice end product. The problem here is that as large businesses grow, the
chiefs of the industry decouple the interests of the workmen more and more. Striving themselves only for
maximizing profits. This is where laissez-faire works against the benefit of the people.
Veblen criticized Neoclassical economics because:
1. It encourages wasteful consumption and behavior. It makes us behave in ways we do not want
(normative)
2. It is too static, focused on rationality and perfect competitive (all of which he rejects) (descriptive)
4. What are the main ideas or tenets of the institutionalist school? How are they markedly different
from those of the neoclassical school?
The main tenets of the institutionalist school are:
Holistic perspective: the connection between all agents constitute something meaningful. So not
only looking at individuals makes a whole.
Focus on institutions: the formal and informal rules and constraints that govern behavior. An
institution is not merely an organization or establishment for the promotion of a particular
objective, it is also an organized pattern of group behavior, well established and accepted as a
fundamental part of the culture.
Evolutionary approach: economy is in flux: processes beyond economics drive ever-changing
institutions.
Rejection of equilibrium analysis: rather than the idea of equilibrium, institutionalists emphasized
the principle of circular causation, or cumulative changes that may be either salutary or harmful in
seeking economic and social goals.
Rejection of pleasure-pain psychology
Clashes of interest: as opposed to Harmony of interests (Smith)
Democratic reform: As opposed to laissez-faire policy should be directed at a more equitable
distribution of wealth.
Lecture 5
5. Name and explain the main elements of Keynes‘ approach to economics and economic policy
Main elements of Keynes’ approach:
Explicitly macroeconomic perspective. Focus on aggregate, not individuals, parameters of economy.
Most important is aggregate demand. The amount of goods and services demanded by all the
agents populating the economy.
The idea of fundamental uncertainty
Psychological foundations of economic behavior and the role of expectations.
Short-run perspective (in long run we are all dead)
2
Working group 5
1. What were the major tenets of the Historical school? Why did it emerge in Germany?
The major tenets of the Historical school are:
Evolutionary approach to economics
Positive role of the state
Holism
Against laissez-faire
Emphasis on social reform (common for Historical school and institutionalism)
The historical school emerged in Germany, because of the relative economic backwardness of the country
in comparison to big economies like France and Great Britain in the mid-late 1800’s. Moreover,
nationalism, militarism and paternalism did also contribute to the emerge of the historical school.
Friedrich List (1789-1846): Founder of the historical school
Against internal, intra-national trade restrictions. Advocate of a strong internal market.
Against free trade for underdeveloped countries. Infant industry argument: develop internal market
irst. Trade doesn’t always benefit two parties. The advanced nation can exploit the other nation.
Free trade only works if the market is mature, otherwise regulations are needed.
For national unification – and for building infrastructure
Active government involvement in economic development
2. Cite the polar positions in the Methodenstreit (Battle of Methods). How did economists
eventually resolve this issue?
The polar positions in the Methodenstreit (Battle of Methods):
German Historical school Austrian school
Economics is.. A descriptive inquiry into An analysis of the pure logic
the historically specific of rational economic
institutions and practices behavior
Role of history Primary Secondary
Role of context and culture Primary Secondary
Appropriate method Induction: from the Deduction: from the
concrete to the abstract abstract to the concrete
Result of economic A set of analyses of An abstract deductive
research? particular economic theory of economic
conditions specific to time rationality, its principles and
and place. implications
In the end of the Methodenstreit seemed to resolve itself into the belief that both inductive and deductive
methods are important and that they normally supplement eachother. In other words, the gathering of
information and the establishing of analytical tools with which to handle the accumulated information are
both instrumental parts of sound economic science.
3. Discuss the concepts of 'leisure class', 'conspicuous consumption', and 'instinct of
workmanship' in Thorstein Veblen. Why did Veblen criticize neoclassical economics?
Thorstein Vebleh (1857-1929): founder of institutionalism
1
, Central topic is conspicuous consumption. That means consuming in ways to display wealth, in contrast to
deriving utility. The demand curve is upward sloping, because as the price increasing it is more effective to
use to display wealth. Exampel of Veblen good is Brick Supreme.
The leisure class (aristocrats) engages in conspicuous consumption. They avoid useful work, for example
they have long fingernails so that is a sign to remain reputable. They are also conservative because they
are harboring sheltered beliefs to slow down social change and maintain current institutions.
Instinct of workmanship: people do not hate to work but enjoy achievement. In other words: we do not
want to avoid work inherently, but we want to feel some agency over what we do in the workplace – to
see that it contributes to some nice end product. The problem here is that as large businesses grow, the
chiefs of the industry decouple the interests of the workmen more and more. Striving themselves only for
maximizing profits. This is where laissez-faire works against the benefit of the people.
Veblen criticized Neoclassical economics because:
1. It encourages wasteful consumption and behavior. It makes us behave in ways we do not want
(normative)
2. It is too static, focused on rationality and perfect competitive (all of which he rejects) (descriptive)
4. What are the main ideas or tenets of the institutionalist school? How are they markedly different
from those of the neoclassical school?
The main tenets of the institutionalist school are:
Holistic perspective: the connection between all agents constitute something meaningful. So not
only looking at individuals makes a whole.
Focus on institutions: the formal and informal rules and constraints that govern behavior. An
institution is not merely an organization or establishment for the promotion of a particular
objective, it is also an organized pattern of group behavior, well established and accepted as a
fundamental part of the culture.
Evolutionary approach: economy is in flux: processes beyond economics drive ever-changing
institutions.
Rejection of equilibrium analysis: rather than the idea of equilibrium, institutionalists emphasized
the principle of circular causation, or cumulative changes that may be either salutary or harmful in
seeking economic and social goals.
Rejection of pleasure-pain psychology
Clashes of interest: as opposed to Harmony of interests (Smith)
Democratic reform: As opposed to laissez-faire policy should be directed at a more equitable
distribution of wealth.
Lecture 5
5. Name and explain the main elements of Keynes‘ approach to economics and economic policy
Main elements of Keynes’ approach:
Explicitly macroeconomic perspective. Focus on aggregate, not individuals, parameters of economy.
Most important is aggregate demand. The amount of goods and services demanded by all the
agents populating the economy.
The idea of fundamental uncertainty
Psychological foundations of economic behavior and the role of expectations.
Short-run perspective (in long run we are all dead)
2
