3.3 — Profit, Entrepreneurship, Capital, and Interest — Class Content
Overview
Today we continue the marginalist revolution.
Readings
Required Readings
- Skim Irving Fisher, Eugen von Böhm-Bawerk, (optional: Wicksell) and their readings in Reader
- Finish Ch.9 “The Transition to Neoclassical Economics: Marginal Analysis Extended” in Landreth & Colander
- Ch.11 “Marginal productivity and factor prices” in Blaug
Recommended Readings:
The following Wikipedia entries can also provide more background:
Questions to Help Your Reading
On Profit and Uncertainty
- Is entrepreneurship a fourth factor of production that is paid its marginal product?
- In what way is pure profit a “residual”?
- What is the difference between “risk” and “uncertainty” according to Knight?
- How is profit related to uncertainty?
- What are the main differences between the theory of (perfect) competition, and actual competition in the real world? How is this tied in with uncertainty, and with profit?
On Interest
- What are Böhm-Bawerk’s three reasons for a positive rate of interest?
- What is “roundaboutness” in production? Why is it more productive, according to Böhm-Bawerk?
- What is “time preference”?
- How does Fisher conceive of interest as it relates to income, and capitalized values?
- What is the quantity theory of money, and Fisher’s equation of exchange? What are the main takeaways?
- What is the difference between the “natural rate” and the “market rate” of interest, according to Wicksell? Explain Wicksell’s “cumulative process” that results if the two are different.
Slides
Below, you can find the slides in two formats. Clicking the image will bring you to the html version of the slides in a new tab. The lower button will allow you to download a PDF version of the slides.
You can type h to see a special list of viewing options, and type o for an outline view of all the slides.
I suggest printing the slides beforehand and using them to take additional notes in class (not everything is in the slides)!
Assignments
Participation/Discussion Board Posts Due 8 PM Fri Oct 28
This week’s graded discussion is worth 5 points, and can be a combination of discussion in class, and/or posts on the Blackboard Discussion Board by 8 PM this Friday October 28.
Tournament Votes
The final round of the Pre-Classical division of the “Most Interesting Economist in History” tournament is live. Please post your votes in the discussion board.