Factor Market: payments between individuals and firms; requires input of machines, labor, effort, etc. to produce goods
Goods Market: people obtain factors (products, services, etc.) from businesses and exchange money for them
Physiocrats
- Believed that allowing children to work on the farm was worthless, when in actuality, their attention to craft and tool innovation increased production
- Thought that craft construction was a leisure activity
- Asserted the idea that people should be able to keep the produce from their own farms
- Believed that the source of wealth was production
Scottish Moral Philosophers
- Thought that people were inherently good --> private choice and social virtue were in harmony
- Believed that good economics were about more than prudence
- Were highly concerned with economic growth
- Hume: One of the most famous SMPs, and most widely read author of the founding fathers
- Asserted that economics weren't (and aren't) a social construct & that economics can survive on its own without the guidance of the king
- Established that the source of wealth is NOT agriculture
- Suggested a specie-flow mechanism: more money chasing the same amount of goods means that prices rise; also governs the law of one price: amount of money vs. goods & services available
- Determined that the main driver behind economic growth was/is commerce because prices around the world will adjust
- Acknowledged that jealousy of trade could be an issue, but it won't be because:
- Competition forces innovation and improvement of goods and services --> lights a fire under native populations
- Trade promotes learning and education on betterment of products
- Division of labor doesn't exist without trade
- Mass market investments in technology make sense because they cause innovation as well as incentivize people to divide labor to create more products --> economics of scale
Mercantilists
- Believed that all trade was zero-sum and that wealth was fixed --> if one nation becomes rich by trading with another then the latter must be poorer
- Thought that sources of wealth were gold in the treasury, the wealth of kings, and positive balance of trade
- Balance of trade was achieved by allowing the king to control trade so that gold could come into the country, but would never leave it --> restrict imports & promote exports
- It was important for them to produce more gold so that they could fund a war and excel in combat
- Thought that free trade shouldn't exist because individuals have private interests that don't coincide with social interests
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