Lecture on Economics and Economic Schools of Thought

Introduction to Economics

• Definition: Collection of production and consumption processes solving the central economic problem
• Central Economic Problem: Limited resources vs. unlimited human consumption
• Foundation of economics
• Social science, utilizes scientific processes
• Disagreements among economists are common

Economic Schools of Thought

General Agreement

• Most agree on fundamental issues, e.g., opportunity costs
• Disagreements often highlighted more than agreements because:
  1. Foundation of economics involves unanswerable questions (philosophical/moral elements)
  2. Difficulty in experimentation (real-world results required)
  3. High public interest due to daily economic impact
• No clear boundaries between schools

Key Focus Areas

• Role of government
• Role of individuals
• Economic crisis solutions
• Delivering a wealthier, happier economy

Classical Economics

Adam Smith

• Pioneer of economics as a distinct field
• Critiqued mercantilism: Hoarding gold through exports, mining, or conflict
• Emphasized production, division of labor, and free markets
• Government’s limited role: Ensure contracts are upheld and prevent fraud
• Rational individuals drive the economy
• Advocated for selfish interest leading to collective benefit

Key Theories

• Importance of specialised production for efficiency
• Free markets enhance wealth creation through specialization
• Limited government intervention preferred

Austrian Economics

Key Figures

• Karl Menger (father of the Austrian school)
• Friedrich von Weisser (marginal utility)

Key Theories

• Marginal Utility: Utility decreases with each additional unit
  • Addresses over-satisfaction
• Subjective Theory of Value: Value determined by importance, not merely labor/materials
• Free market decides what is produced
• Consumers as central agents

Critiques of Austrian Economics

• Considered fringe within modern conventional economics
• Criticized for lack of rigorous mathematics/statistics, making it non-falsifiable
• Popular outside academia for simplicity and support of free market principles

Keynesian Economics

John Maynard Keynes

• Most influential economist of the 20th century
• Advocated countercyclical fiscal policy
• Smooth out business cycles through government intervention

Fiscal Policy

• Tax and spend less during economic booms
• Tax less and spend more during downturns
• Aims for consistent growth by moderating economic ups and downs
• Criticism: Governments often neglect austerity during booms

Summary

• Economics involves diverse schools of thought aiming to tackle the central economic problem
• Classical, Austrian, and Keynesian economics build on each other’s ideas
• Each school offers unique insights into solving economic issues

Next Topic Preview

• Discussion on Marxism vs. Laissez-Faire Capitalism

Investment Note

• Importance of investing for the future emphasized
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