The Laws of Economics, Volume II
59
Introduction
by P Cotter
This chapter was written with the aim of guiding the reader through the often complex and often controversial field of economics. The authors have striven to keep the text short and clear, but have also taken the opportunity to discuss in depth certain aspects of the economics of which many readers may be unfamiliar.
By its very nature, economics is the subject of enormous controversy and disagreement. Within economics there is a wealth of ideas and theories – “schools of thought” – which vary widely in their views. Even among economists who have degrees from the same university there can be profound differences in their ideas. The “University” of America (U. of A.) has always been highly distinguished in economics, but the universities of Cambridge and Oxford have also produced some brilliant economists. At present, economics is seen to have several “schools” or “methodologies” which share certain basic assumptions but differ greatly in their emphasis and explanatory power. These can be characterised as follows.
The classical or neoclassical school of economic thought emphasises the role of human action in creating wealth. It sees the economy as consisting of a dynamic equilibrium of supply and demand for goods and services. An increase in the supply of any good or service will tend to reduce its price or “cost”, and the “lowest price” will be the equilibrium price or the “market price”. Similarly, an increase in the demand for any good or service will tend to increase the supply of that good and reduce its “cost”, so that the “highest price” will be the equilibrium price. Economic activities in this “classical” or “neoclassical” approach are guided by the notion of “equilibrium”. Thus, the economic system operates such that “prices find their own levels, given these assumptions about the demand and supply of goods”.
The marginalist school is the other mainstream school of economic thought. This emphasises the role of economic processes in the determination of the “marginal rate of income”. By this is meant the rate of income derived by the holder of a unit of money when he or she is able to exchange that money for another unit. The “marginal rate of income” can be derived by adding to the total income of the holder of the be359ba680
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