History of Economic Thought

1. Productive consumption is basically the consumption of a good in a shop, you pay for it and the producer gets his profit out of the sale. Unproductive consumption is consuming goods without paying for it, like a farmer who eats his own cheese. There no monetary profit out of this ‘transaction’ and therefore it’s called unproductive.

2. Malthus argued that unproductive consumption by landlords protects the market from excess supply which would lead to economic stagnation. He said that rent is a surplus based on the difference between the price of agricultural produce and the costs of production. Its expenditure therefore adds to effective demand without adding to the cost of production. The other forms of income (wages, interests and profits) increase purchasing power but also raise production costs, and costs must be kept down if a nation is to maintain its competitive position in world markets.

3. Mill divides output in 2 groups: gross (annual) produce and net produce. According to Mill, these two groups are mainly spent on:

Gross produce:

* Replace used capital

* Wages

* Purchase of materials

* Depreciation

Net produce:

* Profits of stocks

* Rent

4. Smith and Quesnay seperated production into different parts. First you have labour and second you have capital.

At the beginning producers mainly use labour. But to improve their production they also had to make use of capital. The productionprocess is at its most productive point when there’s a combination of the two inputs. When producing more productive, national output will increase. This will lead to a higher total wealth.

5. The physiocrats only consider the agricultural sector as productive. Other sectors wouldn’t improve a country’s wealth. The classic economics however considered the agricultural sector to be productive but they were also convinced that other sectors could contribute to a higher total wealth.

6. The central point in mercantalism is to...