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Economic Theories - Essay Example

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Economic Theory Instructor Institution Date Economic Theory a) How Ricardo Criticized and refined Smith’s Theory Classical economic theories are believed to have begun with Adam Smith’s The Wealth of Nations in 1776. Adam Smith’s works were so influential in the 18th and early 19th century, before a group of other classical and neoclassical economic theorists, led by David Ricardo emerged to modify Smith’s theories…
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Economic Theories
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Economic Theories

Download file to see previous pages... His theories helped to establish the foundation to capitalism. Adam Smith postulated that markets were capable of regulating themselves without any external intervention. He introduced a new approach of measuring national wealth using income as opposed to the king’s treasury (Derek, & Steven, 2003). According to him, income was a product of land, labor and capital, and that the income is divided among capitalists, laborers and landlords, in form of interest, rent and wages. Smith’s theory had some limitations, despite helping to revolutionize the economic thought at the time. David Ricardo identified the weaknesses of Smith’s theory and opted to rectify them and incorporate them in his own theory. Among the things he agreed with Smith’s theory include the use of income to measure a country’s wealth. He also agreed with Smith’s view of free markets. He however built his economic thoughts on the three main factors of production; land, capital and labor, that had been identified by Smith (Derek, & Steven, 2003). Ricardo introduced other new ideas in his theory to build on Smith’s ideas. He for instance introduced the idea of international trade as the best way to help the local markets. He introduced the concept of comparative advantage in international trade. Comparative advantage suggests that countries only produce those products that they have a higher comparative advantage and import those which they cannot produce efficiently. b). Marx’s opposition to Capitalism Karl Marx was one of the most vocal thinkers to be opposed to Capitalism. He saw capitalism as just any other historical stage that would eventually end and be replaced by Socialism. According to Karl Marx, capitalism introduced classism in the society. The society was made up of the capitalists who were the land owners and owners of factories and the working class, whom provided labor in the lands and factories owned by the capitalists. He identified that these two main classes had differing interests that were the source of conflicts in the society. The capitalists’ main objective is to get profit and increase their wealth through minimizing their costs, including offering low wages to their workers (Derek, & Steven, 2003). The working class on the other hand strives to maximize their wages. These two compete g interests will lead to conflicts in the society that would eventually lead to a decline in the capitalist system and create ground for socialism. Marx was opposed to the capitalist system because of the instability it would create in the society where the working class would be left dependant on the capitalists who owned massive resources. According to Marx, leaving wealth to a few private individuals would create imbalance in the society and preferred socialism which would take the wealth from individuals and eradicate classes and ensure equality of all people in the community. The labor theory of valu ...Download file to see next pagesRead More
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