Study guide: Economic Doctrines and Major Crises

📋 Course Outline

1. Mercantilist Doctrine
2. Physiocratic Doctrine
3. Classical School
4. Neoclassical Economics
5. Neoclassical Equilibrium Model
6. Keynesian Revolution
7. Great Depression
8. The Thirty Glorious Years
9. First Oil Shock
10. Second Oil Shock
11. Financial Crisis of 2008
12. Recent Economic Crises

📖 1. Mercantilist Doctrine

🔑 Key Concepts & Definitions

• Mercantilism: defines national wealth by the quantity of gold and silver accumulated and seeks to increase it through state intervention in trade and production

★ Must-know

📌 Mercantilist policy seeks an export surplus by subsidizing exports and protecting domestic producers through tariffs, quotas, or import bans.

Further detail

• The main mercantilist branches are Spanish bullionism, French Colbertism, and English commercialism.

• The mercantilist period is conventionally dated from 1500 to 1750.

💡 Memory Hook

Gold accumulation and state protection, rather than market self-regulation

📖 2. Physiocratic Doctrine

🔑 Key Concepts & Definitions

• Physiocracy: Dupont de Nemours, 1767 — considers agricultural production the source of national wealth because it alone creates a surplus or net income

★ Must-know

• Quesnay’s Economic Table, published in 1758, is presented as the first macroeconomic model and describes real and monetary flows between three classes.

• Physiocracy distinguishes three classes:

  • the productive class of farmers and agricultural workers
  • the sterile class of artisans
  • the landowning class of rentiers

Further detail

📌 Physiocrats advocate land reform, high wages, a single tax on landowners, abolition of internal taxes and tolls, and free grain trade under the principle of “let it be and let it pass.”

💡 Memory Hook

A circular flow linking productive farmers, landowners, and the sterile class

📖 3. Classical School

🔑 Key Concepts & Definitions

• Classical School: explains national enrichment and the development of industrial capitalism through natural economic laws, competition, and market self-regulation
• Surplus Value: Karl Marx, 1867 — the difference between the value created by the productive use of labor power and the wage paid for that labor power

📝 Essential Points

• Adam Smith’s Wealth of Nations, published in 1776, develops the idea of the invisible hand and the theory of absolute advantage in international trade.

• David Ricardo developed the theory of comparative advantage and argued that population growth and rising wages would reduce capitalist profits while increasing land rents.

📌 Say’s law states that every supply creates its own demand, making general overproduction impossible and treating money as neutral in relation to the real economy. — Jean-Baptiste Say

💡 Memory Hook

Self-interest → competition → market coordination → social wealth

📖 4. Neoclassical Economics

🔑 Key Concepts & Definitions

• Neoclassical Approach: is microeconomic and static, studying how rational agents coordinate through markets to reach equilibrium between supply and demand
• Methodological Individualism: explains economic and social phenomena by starting from the rational choices of sovereign individual agents
• Marginal Utility: is the additional satisfaction provided by one extra unit of a good, and it decreases as the quantity consumed increases

📝 Essential Points

📌 In neoclassical distribution theory, the real wage equals the marginal productivity of labor and the real interest rate equals the marginal productivity of capital.

💡 Memory Hook

Subjective marginal utility versus objective labor value

📖 5. Neoclassical Equilibrium Model

★ Must-know

📐 Formula — Money-market equilibrium requires the money supply to equal money demand: $M = pY$.

📐 Formula — In the neoclassical goods market, production equals income and demand, with $Y = C + E = C + I$ and therefore $E = I$.

Further detail

• The capital market reaches equilibrium when flexible real interest rates bring household saving into equality with business investment.

💡 Memory Hook

Capital market → goods market → money market

📖 6. Keynesian Revolution

🔑 Key Concepts & Definitions

• Effective Demand: John Maynard Keynes — is the demand anticipated by firms that determines their production level and therefore the level of employment
• Underemployment Equilibrium: John Maynard Keynes — exists when goods-market supply equals anticipated demand while part of the available labor force remains unemployed

📝 Essential Points

• Keynes published The General Theory of Employment, Interest and Money in 1936 during mass unemployment and the Great Depression. — John Maynard Keynes

📌 Keynes argues that state intervention must increase demand to encourage firms to produce more and create employment because capitalism does not spontaneously generate full employment. — John Maynard Keynes

💡 Memory Hook

Effective demand and state intervention versus Say’s law and automatic full employment

📖 7. Great Depression

📝 Essential Points

• The Wall Street crash began on 24 October 1929, known as Black Thursday, when 13 million shares were offered against almost no demand.

• Between September 1929 and July 1932, Wall Street’s market capitalization fell by 87%.

• The American financial crisis spread internationally through bank failures, repatriation of European capital, falling production, collapsing imports and exports, and protectionist trade measures.

📌 Deflationary policy reduces prices, wages, public spending, and money creation, whereas Keynesian stimulus increases public spending and credit to support demand and employment.

💡 Memory Hook

Speculation → stock-market crash → banking crisis → worldwide depression

📖 8. The Thirty Glorious Years

★ Must-know

• The Thirty Glorious Years actually lasted approximately 23 years, from the beginning of the 1950s until the oil shock of October 1973.

• From 1950 to 1973, average annual GDP growth exceeded 9% in Japan, was about 6% in Germany, 5% in France, 4% in the United States, and 3% in the United Kingdom.

• Mass production, capital accumulation, technical progress, assembly-line work, and productivity gains lowered unit costs and expanded consumption of standardized durable goods.

Further detail

📌 Keynesian state regulation supported growth through public works, inexpensive credit, and policies designed to maintain full employment.

💡 Memory Hook

Mass production, productivity, and state regulation → sustained growth

📖 9. First Oil Shock

★ Must-know

• During the first oil shock from October to December 1973, the price of a barrel rose from 10 to 40 dollars.

• The oil-price increase raised firms’ production costs and consumer prices, reduced real household income, worsened the trade balance, and weakened production and investment.

Further detail

• Growth resumed everywhere in 1976 after households maintained consumption, oil-exporting countries increased demand, and governments adopted stimulus policies.

💡 Memory Hook

Oil price quadrupling → inflation and weaker growth

📖 10. Second Oil Shock

★ Must-know

• The second oil shock followed the Iranian Revolution in 1979 and doubled the real price of oil compared with its 1973–1979 level.

• Growth returned in the late 1980s because fiscal deficits supported demand, monetary policy became less restrictive, and the oil counter-shock lowered energy prices and inflation.

Further detail

• The second oil shock produced different national outcomes, including a 1.7% average annual recession in the United Kingdom, nearly zero growth for three years in the United States and Germany, and six years of weak growth in France.

💡 Memory Hook

Iranian revolution → oil shortage → recession and inflation

📖 11. Financial Crisis of 2008

🔑 Key Concepts & Definitions

• Toxic Assets: are financial assets whose value has become negligible or zero, particularly assets linked to subprime mortgages and securitized loans

📝 Essential Points

• Lehman Brothers declared bankruptcy on 15 September 2008, contributing to a worldwide banking and financial crisis.

📌 The monetarist explanation attributes the crisis to excessive liquidity and excessively low Federal Reserve interest rates from 2002 to 2004, whereas the Keynesian explanation attributes it to intrinsically unstable financial markets.

📌 Crisis recovery relied on expansionary fiscal and monetary policies, including public spending and very low central-bank interest rates.

💡 Memory Hook

Toxic assets → banking collapse → credit contraction → depression

📖 12. Recent Economic Crises

📝 Essential Points

• The Coronavirus crisis affected the economy from 2020 to 2022, while the Russia–Ukraine conflict and its economic consequences began in 2022.

📊 Synthesis Tables

Major Economic Doctrines

Crisis Recovery Policies