ECO 207 SA

Principles of Macroeconomics
Professor Dwyer

Day 1

Introduction

• Definition- Economics is the study of how the goods and services we want are produced and
distributed among us.
• Two Major Aspects- Production and Distribution
o Production and distribution are both essential to economic order
o Different societies provide different methods of achieving production.
o The method is secondary, our economy is capitalist. We have one of the strongest
economies, it is suitable to us. More of the word is socialistic.
o Every country produces through 4 principles
 Land
 Labor
 Capital
 Management
o Production can be considered the more important, without production, nothing can be
distributed.
• Order is important for government. People give up freedoms and rights for order.
o US- It is a great producer. It is efficient and produces massive amounts. Can effectively
decrease scarcity.
Distribution should be improved.
America has a market economy for the most part. Economic decisions are made in the
market place by the laws of supply and demand.
Possible drawbacks of the system- Americans have a high demand for entertainment.
(i.e. Actors and baseball players are paid millions while others are starving)
o Soviet Union – It has misdirected production. Tremendous emphasis on heavy industry
but not enough on foodstuffs. Too much emphasis on military but not enough on
infrastructure.
It had great distribution, everyone got an equal share, but it was an equal share of
nothing.
• The basic principle guiding economics is scarcity.
o Anything that increases scarcity is negative; anything that decreases scarcity is good
with few exceptions.
o Environmental damage is a possible factor that offsets scarcity. Mostly only affluent
societies can make that decision.
Social Sciences- Economics the most exact or the inexact sciences. You can’t control all variables in
social sciences.
People- No two people react to the same stimulus in the same way.
No one person reacts to the same stimulus in the same way twice.

People tend to vote based on money for the most part.

The economy was horrible in the last election, so people voted based on economics.

Theories- Sometimes true

Principles- Mostly True, theory tested repeatedly

Laws- Always True

Market economy- Decisions made by people in the market place.

Controlled economy- Economy is controlled by the government

Traditional economy- Economic decisions determined by conditions or criteria other than economics.

-Cultural
-Religious
- Social
-Superstition
-Custom
-Birthright

1 World- Diverse economy that is stable and aided by technology

st

2 World- Developing World, making transition from traditional to modern economy.

nd

3 World- Underdeveloped nations,

rd

Un- Implies idle

Under- Not being used to capacity

Mercantilism- Mercantile structure is where the state controls economy for the betterment of the state.
It was believed that if the state prospered, the people would prosper. This is not necessarily true. What
ended up happening in some cases is that the state did not spend enough on the public and spent too
much on lavish life for royalty and on the military. After the Civil War, the state prospered highly but
the average person lost. In some cases, governments try to distribute wealth through trickle down. It
does not actually work that way.

Modern

Capitalism- Owned and operated by the individual in the interests of individuals. Capitalization.
Principles of Adam Smith. Unbridled capitalism becomes survival of the fittest. Eventually, social
Darwinism emerged. It took Darwin’s theory of survival of the fittest and applied it at a higher level. It
implied that people are rich because they are naturally better.
Andrew Carnegie- “Gospel of Wealth.” He believed in social Darwinism and believed it was okay to
exploit his customers and workers because it made him stronger.

Socialism- Owned and operated by the State or other party in the interests of society. Robert Owen
provided plenty for his workers. His workers were highly productive. He out produced other factories.
He was a humanitarian.
Scientific Socialism- Karl Marx- He called for a revolution of the proletariat. He believed they had
nothing to lose. He rejected any form of nationalism. He believed nation against nation was capitalism.
He believed that any value was based on labor. Divided into two groups
Extreme socialism- Everything becomes owned and operated by the state. Achieve this by force. No
one will give up what they don’t have to.
Modified Socialist- Only those areas that were in the public areas should be socialized.
Karl Marx believed the most capitalist nations would become communist first. However, the countries
adapted and government regulation emerged. It was a compromise.

Fascism- Strong hand running government. Largely discredited as a system due to Hitler, etc. Most of
the time, Russia was fascist, not communist.

Ideological differences led to a stigma against planned system.

Mixed economy works best. There is no system that works better than profit. No-profit system caused
no incentive to work in the Soviet Union.