ECON 307

In Class Exercise Five

The Different Paths in Economic Thought and Petty and Cantillon

1.  Can you think of a theory as to why the two paths we discussed took place and why one of the paths had ideas that were basically lost for many, many years?

2.  Petty thought that "science" should be value free.  Do you think this contributed to his ideas regarding method?  Explain.

3.  Cantillon saw competition as a process of rivalry, not a market structure (size and number of firms).  How might the size and number of firms in an industry change the process of rivalry, or does it?

4.  What are Cantillon effects with respect to inflation in general (where do relative price changes come from and why did he think they were important)?

5.  In what respect is Cantillon's theory regarding interest rates a "loanable funds" theory?  Can you use a graph to explain?

6.  Do you have any other questions over this material?