Role of Government in the Economy - Essay Example

 This analysis will attempt to discuss the relationship that exists between economy and the government. Conversely, it will analyse the different interpretations that take place in conjunction with the various theories that discuss the role of the government in the capitalist economy. By glancing into the economic sector, it would appear that most of the decisions in molding the economy are dependent on the consumer and producer interaction. On the other hand, it could also be observed that in the US, the contribution of the government is effective in the building of the country’s economic standing. In recent times, the government has provided guidance to the progressive movement of the economic activities taking place with the intention of sustaining the continuous economic growth; as well as providing employment and ensuring the stability of the prices of good and services. This means that in the US, the government has an involvement in the acceleration of the economy’s growth rate through the adjustment of such distributions. Other factors include the spending of funds and tax rates through the government management of money supply with the application of control to these monetary policies. Although having said this, it does not necessarily imply that the term would indicate the complete control on economic activities, rather, the term only suggests how the government plays an important role in the stabilisation of the economy. Weintraub (1985) asserts that Neo-classical economics concentrates predominantly on the importance of individual and personal economic preferences, market equilibrium, and the balance between supply and demand (Stigler, 1941). These points are at the center of the neo-classical suppositions of the economy, which are the main trend to the perspective idea of capitalism. The most basic unit of the theory of neo-classical economics evolves into the concept of individual ownership, and initially its focus is on how individuals decide or manage their properties. This theory is primarily concerned with how an individual enjoys the profits in the context of the benefits that they receive from their properties, and thus changing the amount by which will be gained from their property which may also attribute to the social convenience or suffering (Veblen, 1969). Veblen (1969) also believed that an individual can be compared to a computer that mechanically benefits through its given data. The change of that data itself might result in them knowing to put themselves into a position where they will be able to meet various needs. This is the idea of capitalism, a social system that favors individual needs and rights. The neo-classical theory focuses onto the consumer, and how individual consumption will powerfully influence the behavior of the production, the needs of the consumer that has been granted by the market (Goodwin et al, 1997). The stability of the equilibrium in the economy is in the equal distribution of supply and demand. Every individual based on this theory has the right to be involved in the “free market”, wherein sellers and buyers have each others contribution in setting the price of a particular product (Barrons, 1995). Through this principle, it is not the government that will control the supply and demand of a particular product as the free market is governed with the market forces (supply and demand), wherein prices are set toward equilibrium. This maintains the balance of the demands as opposed to the supply of the products. Although the government does not possess an absolute power over the economy, the government does have the role in the economic development which, according to neo-classical theory is essential to economic growth. The main responsibility of the government in the economic sector is to secure business cycles which do not mean harm to individual rights, constituting peace and order and protecting every citizen, both consumers and capitalists against frauds and the threat of violence (Goodwin et al, 1997). It is also their responsibility to concentrate on providing policies that will lead to the improvement of industrialisation. It is in this case that the use of machineries that will speed up production can be more helpful in meeting the increasing market demands. Marxist economics is different to the ideas of neo-classical economics. This is apparent firstly because of the focus of Marx in his discussion about economy is not on the basis of the existing market forces such as the law of supply and demand where both capitalist and consumers are dependent (Marx, 1867). In his ideas about economy, he described that in the economic world, the aspect that should have of great value is the working class, or the labor sector which is responsible for the production of products that are going to be in distribution. He emphasises the presentation of economic structures, on the basis of the labor theory of value, where he developed the theory that the value of the commodity is relative, or measured by how much labor hours are required or used in the production of a particular commodity (Marx, 1867). He also pin pointed the fact that in a capitalist economy, the structure has been divided into a hierarchy, wherein the capitalist rules over the working class or proletariat. Social class according to Marx is based on the relationship between the owners of the means of production or the bourgeoisie, and the working class or the proletariat who sell their labor to the ruling class. According to the Marxist economy, there should be an abolition of the ruling class by means of a state government that will centralise or control economic activity. This means that there will no be social class to any further extent. According to Prychitko (1991) everyone will enjoy an equal share from the benefits of the economy, where the State has a centralised and direct control over it. Through this, property will be abolished and will be used by the state for the common need of people. He argues that such a thing should replace capitalism, because capitalism tends to exploit the working class. Prychitko also pointed out that the exploitation of the working class take places because the profit being gained by the capitalist is more than what they are paying for with regards to the working class or the laborers. He also mentions that capitalism tends to make the working class work more than the value of work that they should be paid for. Prychitko concluded that the profit that every capitalist has is on the basis of such exploitation, therefore to make it fair is to create a planned economy in the hands of the state, where classes and class society will be abolished. In connection to that, a communist government that will end a class society should be formed where the society will govern their own lives. It is through these important areas that a communist government, where every member of society will benefit from the economy on the basis of collective sharing, and not of capitalism or individual rights exerts neo-classical economics. This move according to this theory is to avoid monopolistic tendencies in the economy, where few capitalists can earn benefits from the economy because of the exploitation of the proletariat. These theories also imply that the capitalists have full control over the means of production; therefore they were able to stay in power. Economic judgment in capitalism is based on simplistic profit-and-loss considerations, with little consideration for human worth and need (Elliot, J. E. ed 1981). In this case, in the Communist Manifesto, it is stressed that a society needs to have a government that will deter the existence of capitalism and make way for the equal distribution of resources through a state owned and planned economy. The control of the state government to the economy according to this will ensure that the decisions of the economy will be relative to everybody’s interests. In Conclusion, by relating both theories to the modern economic trends in the US today, where the majority of the economy is based on the free market, there might some points made by Marx that are not going to be applicable to these modern economic trends. He asserted that the exploitation of the working class is proliferating in the neo-classical economics. This aspect has been given a solution for numerous decades past, when the US Government has developed policies that will protect the rights of the labor sector. There are also laws that prevent capitalism taking control of the prices of products by means of implementing the anti-trust laws, where corporations are prohibited by the law to make an attempt to create a monopoly of these products. For firm sustainable development to take place there is no need to implement a government where social class will be eradicated. The greatest role that the government can play is to extend support in ensuring that the public will benefit from the existing economic trends. References Barrons1995, Dictionary of Finance and Investment Terms. Barrons Educational Series Inc. Elliot, J. E. ed 1981, ‘Marx and Engels on Economics, Politics, and Society: Essential Readings with Editorial Commentary’, Sta. Monica. Goodwin, N. R. et al, 1997, ‘Economics in Context: The Need for a New Textbook’. Retrieved April 24, 2007. Global Development and Environment Institute. Marx, K. 1818-1883, ‘Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production.’ Marx and Engels, 1888, The Communist Manifesto. Marx, K.1845, The German Ideology, Marx-Engels Institute, Moscow. Prychitko, D. L. 1991, 'Marxism and Workers' Self-Management: The Essential Tension’, Westport,. CT, Greenwood Press. Stigler, G.J., 1941. Production and Distribution Theories, New York: Macmillan. Stigler, G. J. 1962, ‘On the ‘Chicago School of Economics’: Comment.” Journal of Political Economy 70 . Veblen, Thorstein 1969, ‘Why is Economics Not an Evolutionary Science’, New York: Capricorn. Weintraub, E. R 1985, ‘General Equilibrium Analysis: Studies in Appraisal’, New York: Cambridge University Press. Read More