Economics of Modern Capitalism - Essay Example

This is a study focused to analyse theories of employment, which have been there in the past, amongst economists. These theories have been considered in the light of the question, “What is the role of the Reserve Army of Labour in Marx's theory of accumulation and in what way does it differ from Keynes's theory of unemployment?” Two economists are going to be considered in detail and further in focus will be their differences. Marx and Malthus arguments of population differ. Actually, it is after Malthus presented his argument that Marx begged to refute these sentiments and views by the former. Malthus made two propositions in his argument about population. Firstly, that population escalates in a geometrical type of ratio and secondly, that subsistence rises in an arithmetical type of ratio. These two Malthus’ propositions form the popular population principle which, as he argues is part of the causes of lack of progress by mankind to the achievement of happiness. This so called cause is coherently related to the human nature where there is a continual trend of the entire animated life to rise in populations beyond what is there to nourish them. The necessary as well as natural impacts arising from such tendency are misery and other related vices that has had philanthropists trying in vain to rectify. The principle of population applied by Malthus to bring forth his argument is all based upon natural law where animated life increases far much higher than the available means for the subsistence of their life. This natural law of growth in population is usually put in check by another as Malthus continued to argue, which is the necessity law that restrains the growth inside particular boundaries and at the same time keeping it as low as the available subsistence means. In the case of humans, this natural law of necessity acts by the dictated way of numerous checks that can be ranked under two major categories. These major categories are with the inclusion of; (i) preventive kind of checks that put an impediment upon fertility and (ii) the positive types of checks that raise mortality or the death probability. The final outcome is the misery and poverty situations witnessed among the poor of every country as well as the futile attempts by the well-to-do to rescue them. Marx, and Engel alike, on the other hand came up with a counter argument in reaction to Malthus’ theory of population. They did their analysis under two levels to make their argument clear. The first level is their view that Malthus’ theory is too general principally in that it is just another of the way bourgeois economists make more reified the relationships observed in a typical society. In the theory of Malthus, reify bears the meaning of changing concrete historical relations in a society as well as processes into eternal laws of nature. The process of reification mentioned with regards to social relationships, are characterised in the intellectual production nature under the capitalist conditions of production and the process of human reflections of the social life forms in tandem with the scientific analysis of the same social life forms. The second level is the more precise level of the Marx’s reaction to Malthus’ population principle. This level is about the principle of “the reserve army of labour” which is also referred to as the relative surplus population. He expounds on his point as he continues to make an analysis of the capital accumulation general law. Marx says that the expansion and accumulation of capital comprises of the capitalism’s driving force and this becomes a possibility only in scenarios where capitalists are able to operate at a gain. Gains arise in the appropriation of the surplus value that is produced by the power of labour he purchases. Accumulation arises at the point where capitalists change a part of their surplus value capital. This serves capitalists by allowing them some space to realise expansion and to apportion the extra surplus value and which results into more which continues in series. (Gimenez, 2011) According to Marx, as Baiman, Boushey and Saunders write in their book, said that capitalism brings about the virus differing relationships to employment. As per his argument the reserve army constitutes groups of workers who relate differently to the economy of capitalism. He puts the reserve army of labour into particular kinds which are four: the latent, the floating, the paupers and the stagnant. The best example to provide a more vivid understanding of this categorisation is the then (2000) rates of unemployment and how they impacted on women and African Americans. A number of people say that women fall under the latent labour reserve army. Latent reserve army, as Marx put it, is the group of the workers who are not in the participating labour force but would later become part of the market due to force or induction into paid jobs. (Baiman, Boushey and Saunders, 2000, p107) In the year 1867, Karl Marx made an analysis of the workings of a capitalist type of economy in his book Capital. Despite being put under criticism by most economists who were pro-capitalism, to the employed people it was popular especially during the 1930’s depression. A major reason for the upsurge of interest during the 1930s by most workers is the section of his theory that talks about unemployment and how he treats it. He explained how unemployment comes about and its essence to capitalism. Then came John M. Keynes in 1936 in his book The General Theory of Employment, Interest and Money, which portrayed a shift in attitude by politicians and economists alike. The views by Keynes were two-fold. Politicians and economists accepted the fact that unemployment may come about due a normal kind of functioning by any given capitalist system of economy and also they celebrated Keynes as the economist who showed them that full employment is achievable by way of applying the right measures by the governments. This Keynesian theory was most welcome to trade unions and the then ruling party- Labour party since it prospected that in future governments need not be under pressure as had happened to the Labour party government of 1929 where it was faced by 2 million unemployed persons in the year 1931. A major ramification of the coming of the Keynesian theory was the eventual decline in interest as regards the Marxian theories amongst the working class. Keynes enjoyed the limelight after the prior theories were rendered irrelevant. More specifically, the theories of the 19th century erred in due to their argument that capitalism would always tend towards achieving full employment. An issue that went without the noticing of anyone was that Thomas Malthus had already made steps ahead in Keynes was talking about in his theories. In opposition to Malthus, Keynes described Capital as one erroneous scientific book and that was inapplicable to the then existing issues in the economies. What Keynes did not take note on was the fact that earlier economists were as cynical as he was with the inclusion of Malthus. At some point as Schauerte puts it both Malthus and Keynes were seen to argue in the same line. For instance; they both were against the argument by earlier economists, that during periods of depression, capitalists could make just investments to increase levels of production. To this they said that capitalists would only do so if such a move would be prospected to earn gains following the sale of products. They both dealt with this under different headings; Malthus under hoarding and Keynes under liquidity preference. Malthus’ argument in this context was that capitalists would be reluctant to incur expenditure so as to increase production while Keynes meant that a typical capitalist would prefer to keep the money in terms of cash in such an occurrence or in cash equivalent. Both had differing conclusions of their theories. Marx made a conclusion that as competition in a market is triggered; an industry of capitalism would always try to make a reduction of production costs by way of using labour instead of machinery or any other approach that would ensure the same output with less input of labour. This would create unemployment. Also Malthus put it that capitalism requires “an industrial reserve army” so as to enjoy merits associated with periodical chances of expanding old industries as well as launching new ones and to maintain wages at low levels which enhance profitable production. Karl Marx also wrote that crises that arise periodically cannot be avoided and that stages of recovery could also not be avoided, (that is, recovery, boom, recession and depression). On the other hand, Keynes in his conclusion held that government action can aid in encouraging people to invest as well as increase consumption to enhance recovery from periods of depression are rapidly come out of and that activities could achieve less or more full employment. This is unlike Malthus argument of full employment in a capitalist economy seen earlier. In the classical school of thought’s argument it is possible to achieve full employment in an economy. (Schauerte, 1971) While concluding, it is good to note that Malthus belonged to the classical school of thought that differed in views with other school in the unemployment front. He (Thomas Malthus) particularly applied the notion of diminishing returns while making an explanation of the standards of living. To him population due to the geometric and arithmetic trends of increase in population and food production respectively, there would be continuous low levels of wages with an end result of most living standards’ not rising above levels of subsistence. He also questioned the market economy’s tendency of producing full employment where his blame was directed upon the capitalism’s tendency of limiting its expenditure due to too much savings. Keynes revived the theme in the 1930s. John Maynard Keynes school of thought was witnessed in the periods of the 1930s’ global depression. He broke the tradition of the classical school with his publication about interest, employment and money. The classical school of thought were for the view that in an economic recession, prices and wages would decrease to ensure full employment levels. According to Keynes the opposite of this is true. Keynes said the falling of wages and prices by the declining incomes during depression would lead to the revival of expenditure. Also among his views was that it is a necessity for the government to come in to raise the levels of aggregate expenditure. (frbsf.org , 2011) This conclusion is in the pursuit of answering the study question, “What is the role of the Reserve Army of Labour in Marx's theory of accumulation and in what way does it differ from Keynes's theory of unemployment?” Reference list: Baiman, Ron, Boushey, Heather and Saunders, Dawn. (2000). Political economy and contemporary capitalism: radical perspectives on economic theory and policy. Edition Illustrated. M.E. Sharpe. p107. frbsf.org. (2011). Major Schools of Economic Theory. Retrieved 12th May 2011 http://www.frbsf.org/publications/education/greateconomists/grtschls.html Gimenez, Martha E.(2011). The Population Issue: Marx Vs. Malthus. Retrieved 12th May 2011 http://www.colorado.edu/Sociology/gimenez/work/popissue.html Schauerte, Michael. (1971). Marx and Keynes on Unemployment. Retrieved 12th May 2011 http://www.marxists.org/archive/hardcastle/unemployment.htm Read More