300 BC

Coined the term "economics" to mean the budgeting of a household

Believed that trade was the exchange of equal values (not true)

1300 AD

Led by Thomas Aquinas

Believed in the "Just Price Doctrine"

In reality, prices aren't just or unjust, they are what they are!

France, 1500-1776 AD

Four major flaws:

1. Did not understand spontaneous order; thought a successful economy had to be planned

2. Did not understand methodological individualism (that PEOPLE are the economy!)

3. Confused money with wealth (but money is just a medium for exchange, not wealth)

4. Thought trade was a zero-sum game, and that one person wins and one person loses (if this were true, no trade would happen. Trade is win-win!)

1776-1871

Founded by Adam Smith

Wrote "The Wealth of Nations" that proved mercantilism wrong

Understood spontaneous order (used the example of the "invisible hand")

4 major flaws:

1. historical prices: believed that the price of something was explained by the cost of everything that went into it--if this were true, it would be an infinite regression. You cannot explain prices by another price.

2. Labor theory of value: believed that labor made something more valuable (not necessarily true)

3. Believed that value is objective, that it is an inherent component of an object.

4. Did not understand the concept of the margin. (water-diamonds paradox)