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History of Thought Take Home Final Spring 2014 Bradbury Provide a series of essays on each of the following topics. The entire work should be 7-10 pages as a maximum. Please use 12 point font, standard margins, Times New Roman font, and double spacing. We are short on time, lets make these due Thursday the 22nd by hard copy in my mail box. I will be on campus Tuesday and Thursday of next week but will be in and out giving finals. I will also need you to submit to “safe assign” via Blackboard.

Paper For Above instruction

The following series of essays explores fundamental concepts in economic theory, analyzing the contributions of key thinkers and their implications for understanding market stability, value, and efficiency. Each essay aims to elucidate the significance of these theories within their historical and contemporary contexts, providing a comprehensive overview within the 7-10 page limit.

1. Wicksteed’s Contribution to Value Theory: The Exhaustion of the Product

James Wicksteed made a pivotal contribution to value theory during the marginal utility revolution through his concept of the “exhaustion of the product.” This theory emphasizes that the utility derived from a good diminishes as more units are consumed, ultimately exhausting the available utility in a given context. Wicksteed’s insight elaborates on how consumers allocate their resources across different goods to maximize utility, thus explaining the subjective nature of value. Unlike classical theories grounded in cost or labor, Wicksteed’s approach centers on individual preferences, marking a shift towards marginalism.

The significance of this contribution lies in its foundational role in modern microeconomics. It formalized the notion that value is determined at the margin—how much additional satisfaction a consumer gains from consuming an extra unit—thereby resolving longstanding paradoxes related to total utility and price determination. Wicksteed’s model is further reinforced by the Euler theorem, which relates to the distribution of total utility among goods, assuming constant returns to scale. The Euler theorem posits that the total value of a good is proportional to its marginal utility, establishing a mathematical connection between individual preferences and market equilibrium.

This approach bears a resemblance to Marx’s Transformation Problem, as both examine how value relates to distribution and productivity. However, Marx focused on social relations between labor and capital, critiquing the capitalist mode of production, whereas Wicksteed’s analysis centers on individual utility maximization and subjective preferences. The main difference lies in their scope: Wicksteed’s theory operates at the individual level within a market, while Marx’s theory emphasizes the structural contradictions within capitalism.

2. Adam Smith and the Diamond-Water Paradox: The Shift from Utility to Marginal Utility

Adam Smith rejected utility as the sole foundation for value, illustrated by the famous diamond-water paradox. This paradox highlights that water, essential for life, has a low price, whereas diamonds, non-essential luxury goods, command high prices. Smith’s explanation of this paradox is rooted in the distinction between total utility and marginal utility. Total utility reflects the overall satisfaction derived from a good, but it does not determine value in the marketplace. Instead, marginal utility—the additional utility gained from consuming one more unit—determines price.

The cognitive shift from total utility to marginal utility resolves the paradox by recognizing that water's total utility is high due to its abundance, but its marginal utility is low because additional units add little to satisfaction when basic needs are fulfilled. Conversely, diamonds are scarce, and their marginal utility remains high, thus commanding higher prices. This shift marked a fundamental change in economic thought, emphasizing that value is subjective and based on individual preferences rather than intrinsic worth or total utility.

3. The Evolution of Theories on System Stability and Instability

The question of whether the economic system is inherently stable or unstable has been central to economic thought, prompting a diverse array of theorists to explore and debate this issue. This essay traces the evolution of these perspectives, focusing on scholars who argue for systemic stability and those who emphasize inherent instability.

The classical economist Adam Smith advocates for systemic stability through the mechanism of the “invisible hand,” which suggests that individual self-interest inadvertently promotes societal welfare in a free market. Smith believed that competitive markets tend toward equilibrium, guided by self-regulating forces. Similarly, Léon Walras introduced the concept of the Walrasian auctioneer, a hypothetical entity that ensures supply-demand equilibrium through price adjustments, fostering market stability.

Contrasting these views, Karl Marx emphasized the inherent instability of capitalism driven by internal contradictions. Marx’s Laws of Motion highlight how profit motive and accumulation lead to periodic crises, class struggle, and systemic disruption. Marx believed that capital accumulation and commodification create tensions that are unlikely to self-correct, resulting in cyclical instability.

William Edgeworth contributed to stability theory through the Edgeworth box model, which demonstrates competitive equilibrium conditions. However, he recognized that under certain configurations, markets could experience multiple equilibria or oscillations, indicating potential instability. John Maynard Keynes challenged classical and neoclassical stability assumptions with his concept of “animal spirits,” emphasizing the role of psychology, expectations, and confidence in causing fluctuations. Keynes argued that the economy is prone to periods of disequilibrium due to variations in investor sentiment.

Finally, Joseph Schumpeter’s theory of “creative destruction” underscores the disruptive nature of innovation and technological change, which inherently destabilize existing markets but are essential for long-term growth. For Schumpeter, capitalism’s dynamic process involves continuous cycles of innovation, expansion, and crisis, making stability an ongoing, temporary condition rather than an inherent feature.

Conclusion

The evolution of thought regarding economic stability reveals a rich dialogue between perspectives emphasizing self-correction and those highlighting systemic vulnerabilities. Classical and neoclassical theorists tend to see markets as self-correcting mechanisms driven by individual rationality, while Marx and Keynes provide more pessimistic views, emphasizing structural contradictions and psychological factors that generate instability. Schumpeter’s emphasis on innovation underscores the dynamic and often disruptive character of capitalism. Collectively, these contributions deepen our understanding of the complex forces shaping market stability and change.

References

• Marshall, A. (1890). Principles of Economics. Macmillan.
• Smith, A. (1776). The Wealth of Nations. Methuen & Co., Ltd.
• Walras, L. (1874). Elements of Pure Economics. Allen & Unwin.
• Marx, K. (1867). Capital: A Critique of Political Economy. Penguin Classics.
• Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. Macmillan.
• Edgeworth, F. Y. (1881). Mathematical Psychics. C. Kegan Paul & Co.
• Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy. Harper & Brothers.
• Robinson, J. (1953). The Economics of Imperfect Competition. Macmillan.
• Hicks, J. R. (1939). Value and Capital. Clarendon Press.
• Hayek, F. A. (1944). The Road to Serfdom. Routledge.