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ECN-305 Lecture Notes (Part 3)

ECN-305 Lecture Notes (Part 3) - Lecture notes part 3...

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Lecture notes – part 3 Competing traditions Smith: reliance on markets Ricardo/Malthus: class conflict and disequilibrium Utopian socialists: inequality Marx: deficiencies in capitalism Veblen: irrational economic behavior and institutional change Keynes: market failures Schumpeter: growth and innovation The Contradictions of Schumpeter Keynes (1930): The economic possibilities of our grandchildren Capitalism: tendency to grow, although irregularly Reason: increases in productivity Outcome: increased leisure Schumpeter: depression as a process of adjustment The Contradictions of Schumpeter Capitalism: dynamic and growth-oriented No need for government countercyclical policies But in the long-run, capitalism cannot survive Schumpeter: student of Eugene Bohm-Bawerk in Vienna 1912: The Theory of Economic Development The Contradictions of Schumpeter Starting point of analysis: circular flow No capital accumulation, no growth (stationary state based on inertia) Costs of production: payment to the factors (land, labor, and capital) Payment to capital: management (no profit) What is the origin of the profit? Smith: deduction from output created by workers (Marx) or return to capital The Contradictions of Schumpeter Origin of profit (cont.) Mill: abstinence
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Other authors: earnings of capital Schumpeter: profit is created by innovation (in products, processes, raw materials, organizations, and institutions) Profit is transient (imitators will bring profits down eventually) Emulation: depends on the availability of credit and contributes to business cycles The Contradictions of Schumpeter Innovator: entrepreneur Entrepreneur: profit generator. Owner/Capitalist: profit recipient. Leadership: anticipate business opportunities Leaders: not necessarily capitalists. They are chosen by intellect and will, not blood The Contradictions of Schumpeter Entrepreneurs: talent for innovation Capitalist development is not intrinsic to capitalism Dynamism depends on non-capitalist elites Marx: revolutionary force of the proletariat. Schumpeter: revolutionary force of the entrepreneurs (leaders) What is the role of Research and Development (R&D)? The Contradictions of Schumpeter Schumpeter about the entrepreneur: “When his economic success raises him up socially he has no cultural tradition or attitude to fall back on” Causes of innovation: instinct of workmanship and predatory drive for accumulation (necessity of public esteem) 1939: Business Cycles The Contradictions of Schumpeter Great depression: synchronization of three different types of business cycles (of different lengths) and external shocks Capitalism cannot survive. Why?
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ECN-305 Lecture Notes (Part 3) - Lecture notes part 3...

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