History of Economic Thought Essay

(1) In the article of Allen et al. â€Å"The Foundations of Free Enterprise,† the three types of economic system were discussed. In a traditional economic system, the allocation of resources is based on social customs, culture, and to some extent, religious traditions. The distribution of the fruits of production is dictated by traditional criteria such as age, sex, and other individual qualities that are not essentially related to personal productivity. Primitive, agrarian, and less-developed societies mostly fall on this category. Many traditional economies progressed into a market economic system, wherein the allocation of resources is controlled by private individuals and businesses. The individuals make independent decisions that reflect their best interest, affecting the market demand, product supply, the price of products, and the kinds of goods and services produced. Business competition could be tight, causing some businesses to close down and unemployment to rise. Meanwhile, the government has only minimal control over the individual and business decisions, interfering only when needed. This often results in unequal distribution of resources, which causes poverty to emerge. Conversely, in a command or authoritative economic system, the allocation of resources is directed by the government. The government operates all the industries, determines what goods and services to be produced, how they will be to produced, how they will be divided among the people, and decides how to utilize the talents and skills of its workers. Hence, equal distribution of resources is enforced at the expense of individual freedom. 2) The Quantity Theory of Money (QTM) was developed during the 16th century in an attempt to explain why gold and silver inflow into the U. S. and Europe caused the price levels to increase. Schenk, in his article on money, reports that after minting the large amounts of gold and silver from the Aztec and Incan empires which were brought back to Spain by the conquistadors, the amount of money in circulation went up. The price levels, at the same time, gradually started their slow, century-long rise. Economists such as Henry Thornton were led to assume that â€Å"more money equals more inflation and an increase in money supply does not necessarily mean an increase in economic output† (cited in the article of Heakal on What is the Quantity Theory of Money). Thus, a direct relationship was established between the quantity of money in an economy and the price levels of goods and services. For instance, when the amount of money in circulation doubles, price levels also double, which causes inflation, i. e. the rate at which the price level escalates. This means that the consumer pays twice as much for the same amount of the good or service. (3) Christianity taught faith in reason as the greatest gift of God to man. This stimulated the pursuit of science and democratic practice which gave rise to capitalism. Christian theologians also theorized about the nature of equality and individual rights, which is a feature of capitalism. Christianity also fostered actual progress in ter ms of technical and organizational innovations. During the medieval times, the church was the largest landowner in Europe, and much of the profit went to the religious orders to pay for liturgical services. The rapid innovation in agricultural technology yielded large profits, causing the church to reinvest profits to increase production and diversified. It also led the church to hire more labor force. Hence, based on this information, it is safe to conclude that the church has largely contributed to the rise of capitalism during the medieval period (Stark, B11).