Issues in Economic Thoughts - Assignment Example

? Insert Insert Question 4. The idea of law of diminishing returns: the more one input of equal quality is increased in production while the quantity of all the input of equal quality remains unchanged the smaller will be the resulting addition output has smaller and smaller share the of the other inputs to work with. Thus, more and more forms working tilting the same hectare land will yield fewer and fewer extra bushels of grain. In agriculture the large the population with amount of fixed, the higher the price of food must go even though total food production is greater. Malthus identified the substance wage, with foodstuff the workers’ wages is what workers eat. Rapid increase of food crops is not possible because supply of fertile land is limited and technical improvements do not come fast enough. To Ricardo, economic rent is paid to the owner of the land for the use original and indestructible power of the soil. This rent is not the same as returns derived from improvements made on the land that result to rise of the profit rather than rents. Malthus considered higher rents for landowners as salutary thing. Ricardo believed rent to be unearned income. Landowners who have to work longer hours for the bushel of wheat, sell it at same price as farmers who own the richest delta land. Rent does not determine the prices of grain rather than grain decides the amount of the rent. Answer to question 5. Both contemporary and modern critics have very often regarded Malthus, as an eminently inconsistent writer. Not only was he accused of not reasoning well (Ricardo himself wrote for instance, His arguments are not very cogent; indeed, I am often puzzled to find any connection between the premises and conclusions of his propositions’ Ricardo’s was highly influenced by sparked spare abstraction of English economy of parliamentary debate than proposed corn laws which prohibited importation of grain until the price of domestic grain increased to a specific amount. The central conflict arose from industrialist against landowners who had expanded cultivated acreage. Corns laws had favored only a few at expense of their own capital accumulation thus higher prices meant industrialists had to pay for higher wages. Since most of landowners were parliamentary, thus Corn Law passed easily, debate on these law defined interest of various economic units (groups).Malthus lavished praise on land lords and Ricardo attached the consequences, thus legislative issues become context in economic analysis and revelation of class conflict- how national income to be distributed among landlords manufacturer and workers. Malthus argued that taxation reduces disposable income thus are left worse off. Thus, Corns laws are unfavorable. Answer to question 6. Mill turns economics into a viable philosophical area of inquiry by exploring what people really want and what economics can measure and assess. Mill’s approach to economics is based on his belief in the superiority of socialism, in which economic production would be driven by cooperatives owned by the workers. To this end, Mill argues that the laws of production may be natural laws, but the laws of distribution are created and enacted by human beings. In other words, wealth is the natural product of labor, but the distribution of wealth is determined by the decisions and the will of actual people (the elite) and is not simply part of the order of nature. Mill carries this view quite far, maintaining that human laws and institutions can and should determine how wealth is distributed. Thus, for Mill, economics is closely tied to social philosophy and politics. Private property being assumed as a fact, we have next to enumerate the different classes of persons to whom it gives rise; whose concurrence, or at least whose permission, is necessary to production, and who are therefore able to stipulate for a share of the produce. We have to inquire, according to what laws the produce distributes itself among these classes, by the spontaneous action of the interests of those concerned: after which, a further question will be, what effects are or might be produced by laws, institutions, and measures of government, in superseding or modifying that spontaneous distribution. The three requisites of production, as has been so often repeated, are labor, capital, and land: understanding by capital, the means and appliances which are the accumulated results of previous labor, and by land, the materials and instruments supplied by nature, whether contained in the interior of the earth, or constituting its surface. Since each of these elements of production may be separately appropriated, the industrial community may be considered as divided into landowners, capitalists, and productive laborers. Each of these classes, as such, obtains a share of the produce: no other person or class obtains anything, except by concession from them. The remainder of the community is, in fact, supported at their expense, giving, if any equivalent, one consisting of unproductive services. These three classes, therefore, are considered in political economy as making up the whole community. However, although these three sometimes exist as separate classes, dividing the produce among them, they do not necessarily or always so exist. The fact is so much otherwise, that there are only one or two communities, in which the complete separation of these classes is the general rule. England and Scotland, with parts of Belgium and Holland, are almost the only countries in the world, where the land, capital, and labor employed in agriculture, are generally the property of separate owners. The ordinary case is that the same person owns either two of these requisites, or all three. The case in which the same person owns all three, embraces the two extremes of existing society, in respect to the independence and dignity of the laboring class. First, when the laborer himself is the proprietor. This is the commonest case in the Northern States of the American Union; one of the commonest in France, Switzerland, the three Scandinavian kingdoms, and parts of Germany and a common case in parts of Italy and in Belgium. In all countries there are, no doubt, large landed properties, and a still greater number that, without being large, require the occasional or constant aid of hired laborers. Much, however, of the land is owned in portions too small to require any other labor than that of the peasant and his family, or fully to occupy even that. The other case in which the land, labor, and capital, belong to the same person, is the case of slave countries, in which the landowner owns the laborers themselves. In this case, as well as in its extreme opposite, the case of the peasant proprietor, there is no division of the produce. When the three requisites are not all owned by the same person, it often happens that two of them are so. Sometimes the same person owns the capital and the land, but not the labor. The landlord makes his engagement directly with the laborer, and supplies the whole or part of the stock necessary for cultivation. This system is the usual one in those parts of neither Continental Europe, in which the laborers are serfs on the one hand, nor proprietors on the other. It was very common in France before the Revolution, and is still practiced in some parts of that country, when the land is not the property of the cultivator. On this system, the division of the produce is between two classes, the landowner and the laborer. In other cases, again the laborer does not own the land, but owns the little stock employed on it, the landlord not being in the habit of supplying any. For these advances, the native landed proprietor usually demands high interest; but the principal landowner, the government, makes them gratuitously, recovering the advance after the harvest, together with the rent. The produce is here divided as before, between the same two classes, the landowner and the laborer. These are the principal variations in the classification of those among whom the produce of agricultural labor is distributed. In the case of manufacturing industry, there never are more than two classes, the laborers and the capitalists. The original artisans in all countries were either slaves, or the women of the family. In the manufacturing establishments of the ancients, whether on a large or on a small scale, the, laborers were usually the property of the capitalist. In general, if any manual labor was thought compatible with the dignity of a freeman, it was only agricultural labor. The converse system, in which the laborer owned the capital, was coeval with free labor, and under it the first great advances of manufacturing industry were achieved. Mill believes that society will continue to grow and change, but he recognizes that such change is limited by the capabilities of the land and of labor, both of which have to be handled with care since neither can continue to produce an increasing amount in order to satisfy a growing demand. Mill agrees with Thomas Malthus that population must be controlled so that it does not outgrow its food supply. Mill does discuss the benefits of free competition and the useful and favorable social energies that competition releases. He goes so far as to note that if a society becomes too entrenched in protecting its members from competition, the result is stagnation and mental inertia in its citizens. Therefore, it is important to encourage self-initiative and individual responsibility, and government policy should never weaken or discourage this positive force. Although this does not free the state from its responsibilities of providing security and well-being for its citizens, Mill does modify his generally laissez-faire stance by stating that private monopolies must be prevented, the poor must be properly looked after, and the education of children must be suitably available. Mill firmly believes. Moreover, education allows the lower classes to become more socially active and responsible. Answer to Question 7 Workers do not control the process of their work because they do not own the means of production--the factories or offices, the land, the machines, the raw material, the fuel, or anything else that is necessary to manufacture a product. The entrepreneur who owns these means also buys the labor power of the workers that he employs. The workers, therefore, do not only have to work under the direction of the entrepreneur, they also have to leave the finished product in the entrepreneur's possession. This latter fact establishes the second aspect of alienation: the workers' estrangement from the product of their work. Modern industrial production produces a great variety of impressive things, but these things have mostly little to do with the lives and needs of the workers who produce them. In Marx' words: In what, then, consists the alienation of labor? First, in the fact that labor is external to the worker, i.e., that it does not belong to his nature, that therefore he does not realize himself in his work, that he denies himself in it, that he does not feel at ease in it, but rather unhappy, that he does not develop any free physical or mental energy, but rather mortifies his flesh and ruins his spirit. The worker, therefore, is only himself when he does not work, and in his work, he feels outside himself. He feels at home when he is not working, and when he is working he does not feel at home. His labor, therefore, is not voluntary, but forced--forced labor. It is not the gratification of a need, but only a means to gratify needs outside it. Its alien nature shows itself clearly by the fact that work is shunned like the plague as soon as no physical or other kind of coercion exists. Answer to Question 8. In the Wage Labor and Capital, Marx insists, “the capitalist…buys their labor with money. They sell him their labor for money. However, this is merely the appearance. In reality what they sell to the capitalist for money is their labor power….Labor power…is a commodity. The difference between labor and labor power seems to be important in his argument. By distinguishing between them, Marx seems to be able to explain the concept of surplus labor, of exploitation, the relation between the bourgeois and the proletarian, and so on. This distinction enables Marx to explain, “How it is that the worker receives less than the value of what he produces.” Theoretically, this distinction seems to be extremely brilliant. However, I am still struggling to reach the full understanding of this distinction in terms of empirical level, according to Marx, that “labor (laboring activity) itself has no value. Therefore, exchange-value of labor is a meaningless expression. What has value is not laboring but labor power, that which is exercised in laboring. Then, any labor with exchange-value can be referred to as labor power. Marx also drew a distinction between labor and labor power Labor refers to the "socially necessary labor" that transforms commodities into forms that can be exchanged. What the capitalist pays the worker for is not the "labor" that he adds to a commodity, but the worker is "laboring power" for a set period. If the owner of capital (the means of production) paid directly for labor, exploitation would not be possible. The market would drive the price of labor to the level required for reproduction of labor (sustenance of the worker's life, costs required for nurturing children who will become workers, etc.) Instead, the capitalist pays the worker for his or her laboring power for a set period, which is longer than the time needed to work in order to produce the material conditions needed to reproduce the laborer. That is, the capitalist is paying the worker just enough for the worker to "reproduce" himself or herself (to feed shelter and clothe himself or herself so that s/he can show up for work again next week, and so that s/he can raise children to become workers), but the worker is working long enough to produce more value. The employer appropriates this surplus value, silently and systematically. Malthus Rejected Ricardo’s proposition that profits ‘depend upon wages’: as Ricardo wrote, Malthus did not fail ‘to make the most’ of the ‘modifications’ or ‘exceptions’ to the rule that commodities exchange according to the labor embodied in them Answer to Question 9 Employments of capital Though all capitals are destined for the maintenance of productive labor only, yet the quantity of that labor, which equal capitals are capable of putting into motion, varies extremely according to the diversity of their employment; as does likewise the value which that employment adds to the annual produce of the land and labor of the country.    A capital may be employed in four different ways. First, in procuring the rude produce annually required for the use and consumption of the society. Secondly, in manufacturing and preparing that rude produce for immediate use and consumption. Thirdly, in transporting either the rude or manufactured produce from the places where they abound to those where they are wanted. Lastly, in dividing particular portions of either into such small parcels as suit the occasional demands of those who want them. In the first way are employed the capitals of all those who undertake the improvement or cultivation of lands, mines, or fisheries; in the second, those of all master manufacturers; in the third, those of all wholesale merchants; and in the fourth, those of all retailers. It is difficult to conceive that a capital should be employed in any way that may not be classed under someone or other of those four.       Each of those four methods of employing a capital is essentially necessary either to the existence or to extension of the other three, or to the general convenience of the society.      Unless a capital neither was not employed in furnishing rude produce to a certain degree of abundance, manufactures nor could trade of any kind exist.       Unless a capital was employed in manufacturing that part of the rude produce which requires a good deal of preparation before it can be fit for use and consumption. It would never be produced, because there could be no demand for it; or if it was produced spontaneously, it would be of no value in exchange, and could add nothing to the wealth of the society.      Unless a capital was employed in transporting, either the rude or manufactured produce, from the places where it abounds to those where it is wanted, no more of either could be produced than was necessary for the consumption of the neighborhood. The capital of the merchant exchanges the surplus produce of one place for that of another, and thus encourages the industry and increases the enjoyments of both. Composition of capital Ricardo identifies two sorts of capital ‘capital that is to support labor’ (fixed capital), and ‘capital invested in tools, machinery, and buildings’ (circulating capital); respectively, instruments of labor and variable capital. From the standpoint of the organic composition of capital, the composition of constant capital between instruments of labor and objects of labor is immaterial from the standpoint of circulation, i.e. the distinction between fixed and circulating capital, the composition of circulating capital between objects of labor and wages is equally immaterial. Abstinence theory of profit (Mill) The chief writers of the modern school of political economy, Adam Smith and Ricardo—the former with less, the latter with greater distinctness—had pronounced labor to be the only source of value. Logically carried out, this could leave no room for the phenomenon of interest. All the same, interest existed as a fact, and exerted an undeniable influence on the relative exchange value of goods. Adam Smith and Ricardo took notice of this exception to the labor principle, without seriously trying either to reconcile the disturbing exception with the theory, or to explain it by an independent principle. Thus, with them interest forms an unexplained and contradictory exception to their rule. The exchange value of goods depends, according to Senior, partly on the usefulness of the goods, partly on the limitation of their supply. In the majority of goods (exception being made of those in which any natural monopoly comes into play), the limit of supply consists only in the difficulty of finding persons who are willing to submit to the costs necessary for making them. However, these two limits approximate each other in the case of that majority of goods, which come under free competition. In their case, therefore the costs of production simply make up a sum that determines the value. Relations of Production (Marx) Marx used the term mode of production to refer to the specific organization of economic production in a given society. A mode of production includes the means of production used by a given society, such as factories and other facilities, machines, and raw materials. It also includes labor and the organization of the labor force. The term relation of production refers to the relationship between those who own the means of production (the capitalists or bourgeoisie) and those who do not (the workers or the proletariat). According to Marx, history evolves through the interaction between the mode of production and the relations of production. The mode of production constantly evolves toward a realization of its fullest productive capacity, but this evolution creates antagonisms between the classes of people defined by the relations of production—owners and workers. Capitalism is a mode of production based on private ownership of the means of production. Capitalists produce commodities for the exchange market and to stay competitive must extract as much labor from the workers as possible at the lowest possible cost. The economic interest of the capitalist is to pay the worker as little as possible, in fact just enough to keep him alive and productive. The workers, in turn, come to understand that their economic interest lies in preventing the capitalist from exploiting them in this way. As this example shows, the social relations of production are inherently antagonistic; giving rise to a class struggle that Marx believes will lead to the overthrow of capitalism by the proletariat. The proletariat will replace the capitalist mode of production with a mode of production based on the collective ownership of the means of production, which is called Communism. Works cited Hunt, E K, and Mark Lautzenheiser. History of Economic Thought: A Critical Perspective. Armonk, N.Y: M.E. Sharpe, 2011. Print. Read More