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Political Economy of Canada.docx

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Political Science
Political Science 2211E
Adam Harmes

Political Economy of Canada – Neoliberal Approach to Economic Policy Classical Political Economy - Theorists associated with the classical school: Adam smith, David Ricardo, Thomas Malthus, James Mill and his son James Stuart Mill - Adam Smith – Wealth of Nations (1776) – fist book to lay out the abstract model of nature, structure and workings of a capitalist economy o Theory: Self-serving behaviour of individuals benefits not only those concerned by society as a whole o Each one of these individuals are led by an ‘invisible hand’ o This process should take place without the intervention of the church or state - The liberal theory originally focused on the supply, not demand, side of economics - Labour of Theory Value: David Richardo o The prices of good are strictly proportional to the value of labour embodied in them.  i.e. a natural object has no value until human labour is added to it, transforming it into a good or commodity o theory was later abandoned by other liberal political economists - Income Distribution: o Income is a function of whether an individual owns labour, land, or capital. o The implication was that profit was theft by another name o Classical economist recognized the unfairness income distribution but didn’t oppose it - Theory of Competitive Advantage: David Richardo o Free international trade benefits both countries involved o AKA Heckscher-Ohlin-Samuelson Model Marginalism and Neoclassical Economics: - Stanley Jevons, Carl Menger, Leon Walras marked the beginning of marginalism in liberal political economy - Marginalism: people receive utility (satisfaction) from consuming commodities. However the consumption of each unit gives increasingly less utility until a point of ‘marginal utility’ is reached. - Prices are determined at a point at which demand = supply - Higher prices: supply increases + demand decreases = surplus - Lower prices: supply decreases + demand increases = shortage Welfare Economics - Interwar period saw the development of welfare economics - Inspired by The Economics of Welfare by A.C. Pigou - Welfare economics theory based on the norms of Pareto optimality – created by Vilfredo Pareto o Social situation is optimal when no one person’s position can be improved without worsening another’s o There is no place for corrective measures o Prime example of this:  Perfectly competitive neoclassical market in which economic resources are allocated in the most efficient manner possible through price mechanism - Market Failures: o Monopolies: welfare theorists argue the government has a role to play in regulating monopolies and providing product and market information to buyer and sellers to facilitate a competitive market which leads to Pareto optimal results. o Externalities – spillover effects: producers and consumers make economic decisions on the basis of how the decision benefits themselves.  Negative: company dumping waste into public waters so they don’t have to pay shipping and disposal: this is where gov’t intervention is required  Positive: providing education Keynesian Economics: 1930s - Welfare economics – microeconomic nature, Keynesian economics – macroeconomics - Theory first appeared i
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