ECON-221 Lecture Notes - Lecture 3: John Maynard Keynes, Diminishing Returns, Comparative Advantage
20 Aug 2020
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Document Summary
Economics began when thoughtful observers asked themselves how such a complex set of dealings is organized. The great insight of the early economists was that an economy based on free-market transactions is self-organizing. The great scottish economists and political philosopher adams smith was the first to develop this insight. Smith said that self-interest, not benevolence is the foundation economic order. Smith said that spontaneously generated social order is relatively efficient. He said that market society produces ordered behavior that makes it appear as if people are guided by a hidden hand. He did not literally mean that a supernatural presence guides economic affairs. Instead he referred to the amazing emergence of order out of so many independent decisions. That all individuals respond to the same set of prices which are determined in markets that respond to overall conditions of national scarcities and plenty.
