Page 61 - Global Political Economy_Understanding The International Economic Order

CHA PTER T HREE
ning ideas in this intellectual struggle become part of the ever-evolv-
ing consensus of the profession.
The foundations of modern economics were laid by David Ricardo
3
in the early decades of the nineteenth century. Ricardo and his fellow
classical economists shareda number of basic assumptions, including
the idea that everything of value was created by labor (the labor the-
ory of value) anda belief that the three basic factors of production
(land, labor, andcapital) couldnot move across national boundaries.
Ricardo andother classical economists were particularly interestedin
learning (1) what laws govern the distribution of income among the
factors of production and (2) the determinants of international trad-
ing patterns; that is, the composition of the imports andexports of
different countries. Seeking answers to these questions, Ricardo uti-
lizedbasic mathematical techniques and formal models that continue
to be the accepted methodology of professional economics. Ricardo
also formulatedthe law of diminishing returns (or rent) to account
for the distribution of national income and the principle or theory of
comparative advantage to explain trade patterns. With that principle,
he explainedwhy Great Britain exportedtextiles andimportedport
from Portugal. While the questions, methods, and theories of the eco-
nomics profession have changedover the past century anda half,
Ricardo’s basic approach to the subject has continued to guide his
economist successors.
Economics as the Science of Rational Choice
Most contemporary economists wouldjoin Paul Samuelson in defin-
ing economics as the study of choice under conditions of scarcity. 4
According to this definition, the study of economics originates in the
fundamental fact that, in a world where everything is scarce, choices
must be made. Economics is the science that guides individuals to
make an efficient allocation of scarce resources to alternative andfre-
quently equally desirable goals. In other words, modern economics is
basically a science of rational choice or decision-making under condi-
tions of scarcity or constraints. Economics, according to many if not
most economists, can provide a comprehensive explanation of human
behavior basedon market principles. 5
Every decision, whatever benefits it may bring, involves a cost or
3
DavidRicardo, The Principles of Political Economy and Taxation (New York: E. P.
Dutton, 1911; first publishedin 1817).
4
Paul A. Samuelson, Economics: An Introductory Analysis (New York: McGraw-
Hill, 1967), 5.
5
Gary S. Becker, The Economic Approach to Human Behavior (Chicago: University
of Chicago Press, 1976), 5.
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