[#1]

, siriopoulos@upatras.gr

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Jean-Baptiste Colbert.

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18 ,
Adam Smith.
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enry Clay, lexander Hamilton Henrey C. Carey.

[lexander Hamilton: Hamilton's ideas and three Reports to Congress formed the philosophical basis
of the American School].

[Senator Henry Clay, leader of the Whig Party and advocate for the American System.]


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[: The Project Gutenberg EBook of History of the United States by Charles A. Beard and Mary R.
Beard.].

 ( ),
1932
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, Adam Smith,
D.Hume J.Locke.

4. David Hume,
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19
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laissez-faire .Smith.
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David Hume (1711-1776). , .

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11

(hysiocrats) 18
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, The Wealth of
Nations Adam Smith, 1776.
Richard
Cantillon (1680-1734), ,
Essai sur la nature du commerce en general 17565. Cantillon
.
Francois Quesnay (1694-1774).
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Francois Quesnay (1694-1774)

5

Cantillon , ,
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1734.
Compagnie Perpetuelle des Indes
John Law (1671-1729). O J.Law
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Das Kapital
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1. Quesnay (Quesnays Tableau conomique).

2. Laissez faire.
3. .
4. (Diminishing returns).
5. ( , working capital)
(reinvestment of capital).

13

()
17 19 ,
1760-1830,
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Adam Smith (1723-1790). .

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Wealth of Nations, . 352).
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, : ... and generally becomes as stupid and ignorant as it is
possible for a human creature to become. ( The Wealth of Nations, . 734).
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(human capital)
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A.Smith, (homo oeconomicus)
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Adam Smith (invisible hand) .
:
To solve the mystery of the meaning of the invisible hand, we go backward in time
and show that Smith discovered the general conceptual framework for the invisible

15

hand in Richard Cantillons Essai sur la Nature du Commerce en Gnral (1755,

hereafter, Essai)6.
Cantillon
Cantillons model of the isolated estate represents a revolutionary breakthrough in
economic theory and both of Smiths economic applications of the invisible hand
which have long been understood to be disconnectedcan be found in it. This linkage
between Smith and Cantillon permits us to describe the invisible hand as the
processes that constitute price theory, competition, and distribution {
, }.
The Essai was written in a difficult style, was highly rigoroususing new methods
and terminologyand was an integrated presentation that carried across various
chapters and sections. Consequently, Cantillons Essai was often misunderstood by
his readers. Smith appears to have understood the materialespecially of Part Iand
captured Cantillons very well-disguised hand into his own invisible hand.
What then are the component parts of the invisible hand as constructed by Cantillon?
Of central importance was his model of the isolated estate, where Cantillon starts with
the property owner directing the activities of the estate and then transforms the estate
into leased farms and independent entrepreneurs, markets, wages and prices. The land
owner uses his rents to purchase goods and services for himself, but the vast majority
of the production of the estate is ultimately consumed by his former slaves and
servants. In the model, Cantillon moves the economy from the management of the
visible hand of the property owner to the invisible hand of the market, and the
resulting economy is presented as a circular-flow of production, distribution,
consumption and most importantly, one of mutual interdependence. The market itself
is directed by consumers whose choices are reflected in market prices that send
signals to entrepreneurs who are directed by their self-interest to obtain profits and
redirected by losses to ensure maximum production and consumer sovereignty.
Savings (i.e., capital) enhances our ability to produce and wealth represents our ability
to consume.
6

Essai sur la Nature du Commerce en Gnral (hereafter, Essai) was written around 1730 and
circulated privately until it was published in 1755 therefore it might not have been available to Smith
when he wrote the History of Astronomy (HA) in 1749, but probably was available for writing Theory
of Moral Sentiments (TMS) and was obviously available to him for the writing of Wealth of Nations
(WN). The Essai was also an important impetus to the establishment of the Physiocrats in 1756.

16

Holcombe (1999) shows for example that while there are certain aspects of
equilibrium and the invisible hand that are similar, and that each concept is
understood, in part, in terms of the other, that the invisible hand approach has distinct
differences from the equilibrium approach and that ignoring the invisible hand causes
important practical problems for economic analysis.
A.Smith
History of Astronomy 1749,

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Theory of Moral Sentiments, 1759, ,

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The Wealth of Nations 1776,
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A.Smith
1.Self-interest promotes the general interest. This is the most common interpretation
according to Grampp, but he claims this only holds true in competitive markets when
capital is maintained domestically and only when people actually follow their selfinterest (and Grampp gives several reasons why they often do not).
2. The invisible hand is the price mechanism. This is another common interpretation
that Grampp rejects because Smiths equilibrium only maximizes welfare when
wealth is maximized by traders who restrict their trading to domestic markets.

17

3. Grampp labels the Neo-Austrian view of the invisible hand as the metaphor for
how beneficial social orders emerge from the unintended consequences of individual
actions.12
4. The invisible hand is competition. Grampp finds that Smith did not discuss
competition when describing the invisible hand and did not declare it present in all
competitive markets or self-interested acts.
5. The invisible hand is the mutual advantage from exchange. This mutual advantage
is not at all invisible in Smith and he does not discuss it in describing the role of the
invisible hand.
6. The invisible hand is a joke. A recent and novel interpretation in the AER13 based
on the idea that the meaning of the term is not consistent in its three uses. Grampp
finds that while there are three uses with distinct meanings, this hardly means the term
is a joke or without meaning.
7. Acquiring skills and knowledge in business leads to increases in wealth. You could
use an invisible-hand explanation for this process, but this process has nothing to do
with Adam Smiths use and like #3 provides nothing of use for the economist.
8. The invisible hand is God. In HA Smith condemns religious explanations for
natural phenomena, in the TMS he makes a deistic reference, and in WN it is clearly
not a religious referencehe does not write as ifbut is referring to tangible
human forces, so this interpretation is on weak grounds.
9. The invisible hand promotes the national defense by preventing the export of
capital. Grampp likes this explanation best of all because it is most like his own (i.e.
#13). This interpretation is based on Smiths use of the phrase in WN, it refers term is
a joke or without meaning.
10. Acquiring skills and knowledge in business leads to increases in wealth. You
could use an invisible-hand explanation for this process, but this process has nothing
to do with Adam Smiths use and like #3 provides nothing of use for the economist.
18

11. The invisible hand is God. In HA Smith condemns religious explanations for
natural phenomena, in the TMS he makes a deistic reference, and in WN it is clearly
not a religious referencehe does not write as ifbut is referring to tangible
human forces, so this interpretation is on weak grounds.
12. The invisible hand promotes the national defense by preventing the export of
capital. Grampp likes this explanation best of all because it is most like his own (i.e.
#13). This interpretation is based on Smiths use of the phrase in WN, it refers to what
the invisible hand does, and it relates to the geographic location of wealth. The only
problem, according to Grampp, is that it is not complete.
13. Grampps interpretation, which he claims is Adam Smiths own interpretation, is
that when individuals self-interest leads them to keep their capital at home, rather
than exporting it, this promotes the national defense. In his own words, the invisible
hand then is self-interest operating in this circumstance, the circumstance in which a
private transaction yields a positive externality that augments a public good.
: The invisible hand is individuals who pursue their self interest,
who make exchanges of labor and goods with others to their mutual benefit.
These exchanges result in the development of markets and competition between
buyers and sellers and this competition drives the price system resulting in
maximum production and consumer satisfaction.

19

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"The short run is a period of time in which the quantity of at least one input is fixed and the
quantities of the other inputs can be varied. The long run is a period of time in which the
quantities of all inputs can be varied.

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47

Product
Markets

Expenditure

Goods
demanded

Revenue

Goods
supplied

Households

Firms
Inputs
supplied

Incomes

Inputs
demanded

Factor
Markets

Costs

Flow of goods and services

Flow of money

0.1: [: Internet (?)

2.1 P.R.Gregory Essentials of Economics, Addison Wesley, 2002, . 29].

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 :
Microeconomics is the study of decisions that people and businesses make
regarding the allocation of resources and prices of goods and services. This means
also taking into account taxes and regulations created by governments.
Microeconomics focuses on supply and demand and other forces that determine
price levels for specific companies in specific industry sectors. For example,
microeconomics would look at how a specific company could maximize it's
production and capacity so it could lower prices and better compete in its industry.
Macroeconomics, on the other hand, is the field of economics that studies the
behavior of the economy as a whole and not just on specific companies, but entire
industries and economies. This looks at economy-wide phenomena such as Gross
National Product (GDP) and how it is affected by changes in unemployment,
national income, rate of growth, and price levels. For example, macroeconomics
would look at how an increase/decrease in net exports would affect a nation's capital
account or how GDP would be affected by unemployment rate.
, Greg Mankiw ( Internet 2006)
-
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.
() - ()19.

19

, ,
, : Stanley Fisher, Larry
Summers, Joseph Stiglitz Janet Yellen Clinton ,
John Taylor, Richard Clarida, Ben Bernanke Greg Mankiw Bush.

52

.
1.1 - -
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57

Demand and Supply Model

How are all the individual buying and selling decisions taken in a market
system co-ordinated? Answer - via price changes.
Prices are determined by and, in turn, co-ordinate buying and selling (i.e.
demand and supply) decisions in markets. The demand and supply model
shows how prices fulfil this crucial co-ordinating role

Demand
A demand function for a good A can be written as follows:
D A = F ( PA , Y , Ps , PC , T )
i.e. the demand for a good A (DA) depends upon:
Price of the good (PA)
Income of consumers (Y)
Prices of related goods - complements (PC) and substitutes (PS)
Tastes (T) - preferences of consumers
A demand schedule shows the relation between the market price (PA) and
the quantity demanded of a good during a given time period, all other
determinants held constant (ceteris paribus)
Numerical example: Demand Schedule
Price per unit

Quantity per
period

19

18

17

16

10

15

12

14

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14

Price per unit

12
10
8
6
4
D

2
0
0

10

20

30

Quantity pe r pe riod

If the price changes - a movement along the demand curve

If another variable changes - a shift in the demand curve
e.g. an increase in income shifts the demand curve to the right (normal
good) or to the left (inferior good)

Now try seminar question 2

Supply
A supply function for a good A can be written as follows:
S A = F ( PA , PF , T )
i.e. the supply of a good A (SA) depends upon:
Price of the good (PA)
Prices of inputs (factors) (PF)
Technology - the available production methods
A supply schedule shows the relation between the market price (PA) and
the quantity of a good firms are willing to supply in a given period of
time, all other determinants held constant (ceteris paribus)
Numerical example: Supply Schedule
Price per unit

Quantity per
period

12

16

10

20

59

12

24

14
S

Price per unit

12
10
8
6
4
2
0
0

10

20

30

Quantity pe r pe riod

If the price changes - a movement along the supply curve

If another variable changes - a shift in the supply curve
e.g. if the wage rate paid to labour increases, the supply curve shifts to the
left.

Now try seminar question 3

Equilibrium
The concept of equilibrium is central to microeconomic models.
Equilibrium is a position of balance, which persists because there is no
incentive for anyone to change their behaviour.
Market equilibrium exists when demand = supply; i.e. when the
amount consumers want to buy at a particular price equals the amount
firms want to sell at that price. The price which equates demand and
supply (i.e. clears the market) is the equilibrium price.
Numerical example: Market equilibrium
Price per unit

Quantity
demanded per
period

Quantity
supplied per
period

19

18

17

12

16

16

10

15

20

12

14

24
60

14
S

Price per unit

12
10
8
6
4
D

2
0
0

10

16

20

30

Quantity pe r pe riod

The equilibrium price is 8 and the equilibrium quantity traded is 16

If price is above equilibrium - excess supply (glut) - price falls
If price is below equilibrium - excess demand (shortage) - price rises

Comparative Statics
What happens if one of the held constant variables determining demand
and/or supply changes? Clearly, a new equilibrium price and quantity will
occur.
Numerical example: Decrease in Income
Suppose that consumers incomes decrease (and the good is normal) - the
demand curve shifts to the left as less is demanded at every price. Assume
that demand falls by 5.
Price per unit

Old Quantity New Quantity Quantity

demanded per demanded per supplied per
period
period
period

19

14

18

13

17

12

12

16

11

16

10

15

10

20

12

14

24

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14
D2

Price per unit

12

10
8
6
4
D1

2
0
0

10

12 16

20

30

Quantity pe r pe riod

The new equilibrium price is 6 and quantity traded is 12; i.e. both quantity
and price fall.

Now try seminar questions 4 & 5

The Role of Prices
The demand and supply model clarifies the fundamental role of prices in
the market system. Specifically, prices perform the following essential
functions:
Prices convey information - about relative scarcity or abundance of
goods and inputs to households and firms
Prices ration scarce resources - by equating demand and supply
Prices determine incomes - a households income from the market
depends on the prices of the inputs it supplies to the market.

62

The Market Economy: Seminar Questions

1.

2.

3.

4.

Evaluate each of the following statements:

a)

A society can always produce more automobiles if it chooses to do so.

Hence, there can never be any real scarcity of automobiles.

b)

Governments have the power to raise all the money they want by
taxation. Hence, scarcity is not a problem for governments.

c)

Citizens of Sweden are lucky because they have free health care, while
citizens of the United States have to pay for it.

Explain what happens to the demand curve for a good when the following
changes occur, ceteris paribus.
a)

A rise in the price of a substitute good

b)

A rise in the price of a complementary good

c)

A fall in the price of the good

Explain what happens to the supply curve for a good when the following
changes occur, ceteris paribus
a)

A fall in the price of components used to make the good

b)

An improvement in the productivity of the labour producing the good

c)

A rise in the price of the good.

Suppose that the market demand curve for haircuts in some town is:
D = 80 2 P + 5I

where D is quantity demanded per month, P is price per haircut, and I is consumer
income (in tens of thousands of pounds). The supply curve is:
S = 2P
where S is the quantity supplied per month.

5.

a)

According to this model, are haircuts a normal or inferior good?

b)

Suppose I = 3. find the equilibrium price and quantity of haircuts.

c)

Because of a recession, I falls to 2. What happens in the haircut

market?

In the late 1980s, improvements in technology led to a dramatic lowering in

the price of fax machines. Use a supply and demand model to predict the
impact of this development on the overnight document-delivery business. Use
the diagram to predict changes in the number of pieces of overnight mail, and
the price per piece.

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Suppose that you own a building that you use for a retail store. If the next-best
use of the building is to rent it to someone else, the opportunity cost of using
the business for your business is the rent you could have received. If the nextbest use of the building is to sell it to someone else, the annual opportunity
cost of using it for your own business is the foregone interest that you could
have received (e.g., if the interest rate is 10% and the building is worth
$100,000, you give up $10,000 in interest each year by keeping the building,
assuming that the value of the building remains constant over the year -depreciation or appreciation would have to be taken into account if the value
of the building changes over time).
The opportunity class of attending college includes:
o the cost of tuition, books, and supplies (the costs of room and board
only appear if these costs differ from the levels that would have been
paid in your next-best alternative),
o foregone income (this is usually the largest cost associated with college
attendance), and
o psychic costs (the stress, anxiety, etc. associated with studying,
worrying about grades, etc.).
If you attend a movie, the opportunity cost includes not only the cost of the
tickets and transportation, but also the opportunity cost of the time required to
view the movie.

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