QuestionQuestion

Please answer three out of the five questions. You need to synthesize the different readings that we have dealt with in class. Keep your answers to between 6-8 double-spaced pages.

Make sure that you separate your answers to the different questions and that you cite your sources properly.

1. The Role of the State is one of the most debated topics of economics. Discuss the different responses of Bentham, Ricardo, Mill and Keynes to the question of whether the state should play a role in the economy.

2. Say’s Law has been one of the most influential propositions in economics. Present Say’s Law and present the theories of two authors who disagree with Say’s original formulation. What do these authors propose?

3. Aristotle in part IX of Book I of Politics makes the following claim: “Of everything that we possess there are two uses: both belong to the thing as such, but not in the same manner, for one is the proper, and the other the improper or secondary use of it” (Medema and Samuels, 2013, p. 10).

i. Explain how this dichotomy is at the center of Smith, Ricardo and Marx’s theory.

ii. Explain how Jevons and Menger do away with one part of this dichotomy in their attempt to move economics from production to consumption.

4. “The Physiocrats, Karl Marx, and Alfred Marshall have one thing in common: they all talk about the economic surplus. However, their theorizations differ significantly: surplus is a very specific gift according to the Physiocrats, it is connected to exploitation in capitalism according to Marx, and it is no longer threatening when it resurfaces in neoclassical thought with Marshall”. Explain the passage above.

5. Inequality of income and wealth has produced various analytical responses from different authors. Explain how Aristotle, Locke and Veblen deal with inequality in their theories.

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1. The Role of the State is one of the most debated topics of economics. Discuss the different responses of Bentham, Ricardo, Mill and Keynes to the question of whether the state should play a role in the economy.

Keynes
To best understand how and what Keynes took the role of the state to be in the economy, one must start with the interplay between savings and investment. Typically, in good times, the apt analogy was that of a seesaw; when savings rates are high, there is downward pressure on interest rates, in turn attracting businesses to borrow at attractive interest rates, in order to invest profitably; when savings rates are low, and if/when businesses feel the need to expand, they can enter the money market to offer interest rates that attract savings back into the market. At least prima facie, “the seesaw theory seemed to promise that there would be an automatic safety switch built right into the business cycle itself…[t]he economy might contract, said the theory, but it seemed certain to rebound.” (Heilbroner, p. 275)
But rebound is exactly what did not happen in the Great Depression. Keynes key insight was to realize that savings could dry up because people did not have money to save; even worse, businesses could be so pessimistic about the future as to not wish to expand, thus being unwilling to coax savings back into the money market with the allure of higher interest rates. Thus, “the economy could lie stagnant indefinitely, like a ship becalmed” (p. 276); “it would remain in a condition of “equilibrium” despite the presence of unemployed men and women and underutilized plant and equipment.” (p. 277) And with nothing stepping in to take up the slack in investment growing as more businesses choose not to expand, contraction is a given....
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