Monetary Economics Development - Essay Example

People in underdeveloped countries are hauntingly reminded of conditions in less developed lands, while people in the less developed countries are continually exposed to the relatively affluent style of living in the developed nations (Alpert, 2007, 118). This precipitates studies in monetarty economic development, which has been variously defined at various points of time. But, essentially, monetary economic development is a complex historical process, in which monetary economic and noneconomic factors are closely interwoven. It can be best defined as the exploitation of all productive resources by a country in order to expand money supply (Haberler, 2008, 53). Monetary Economic growth is generally thought of as one-dimensional and is measured by increase in income. Monetary Economic development involves structural and functional changes and appropriate system of money supply. In the absence of effective measures of the latter however, states of development are estimated by the growth of income. Ordinarily, levels of income and rates of increase are given on a per capita basis, to approximate measures of efficiency and welfare (Shin, 2005, 1117). There are broadly three periods in the early history of monetary economic thought. The first is the period of early industrialisation in Europe, the second is the period of industrial revolution in England, i.e. the period from about 1775 to 1832, and the third period falls in the third quarter of the nineteenth century when other countries like Germany and the United States began to catch up with Britain and finally overtook it as the leading industrial power of the world. But monetary economic development as a discipline comprising systematic and scientific study may be said to have developed over the last few decades (Hahn, 2001). According to Malthus, as long as the wage level is above a certain minimum w0/ population tend to grow very rapidly. Since the actual w never rises above w0/ any short-run increase of the wage is sufficient to provoke a large enough upsurge in population to bring the wage down to a minimum level. Thus, if once the whole world were inhabited, population would increase in an arithmetic ratio as resources do, and not show a tendency of increasing in a geometric ratio, and then there would be progress. But this progress would consist of a proportional increase in the total quantity of capital and the total number of workers. There would be no increase in the standard of living since by hypothesis, every increase in the living standards, i.e. wages would lead to a sufficient increase in population to wipe out again the increased standard of living (Haberler, 2008, 56). Thus, with its primary focus on population Malthusianism provided a way of looking at the origins of poverty and method of money supply - and, by extension to more recent times, to underdevelopment which effectively mystified the central role of capitalist relations to production (Ross, 1998). In sum, the principal notion in the classical period was that population is the effect of monetary economic development (Meier and Rauch, 2000). It may be noted here, that Smithian and Ricardian concepts of monetary economic development through money supply via international trade were later expounded in the twentieth century by Viner (1962) through the Marshallian "real-cost" theory, Haberler through the "opportunity-cost" theory, and Hecksher and Ohlin (Ekins, 2000) through the "factor-endowments" theory. (Alpert, 2007, 135) There was a general agreement among the monetary encomiasts of this period that base multiplier approach to the determination of the money supply was dependent on successful solutions of certain basic problems, in particular, the accumulation and use of maximum material and human resources in order to increase and improve production. It was understood that while the quantity and availability of material and human resources are basic, the manners in which these resources are used determined the direction and speed of monetary economic development (Haberler, 2008, 58). The process to achieve this was suggested to be industrialisation. This was more so, given the rate at which productive factors in the underdeveloped countries were growing all the time, through the increase in population numbers, health, education and capital, home-made as well as imported. On the other side, there was no doubt that world demand for a wide range of primary products was relatively slow in expanding. Under these circumstances it was contended that exclusive emphasis on traditional pattern of growth through trade would be out of place (Alpert, 2007, 147). Boulding suggested that monetary economic progress consisted of improved means, the discovery and application of better ways of doing things to satisfy wants, without considering the ends. (Haberler, 2008, 55) However, the means of development policy applied in different countries depend very much on the preference of their governments with regard to monetary economic order. In most countries, prices are the main instruments of policy, whereas in smaller countries, trade is the instrument of policy that has considerable impact on the monetary comfy (Shin, 2005, 1111). The balanced growth theories was based on the income effect and set patterns of expansion in consumption and production in the light of the substitution effect and flexible patterns of consumption and production of neoclassical analysis. The problem of choice cannot be ignored for long, for beyond a certain point, different lines of monetary economic development activities compete for the available scarce resources. (Haberler, 2008, 56) On the other hand, the unbalanced growth approach illustrated the method of harnessing the market mechanism for monetary economic development. In the short run the market mechanism deals with the shortage of a particular commodity or factor of production by raising its price sharply enough to cut down demand and equate it to the given supply. In the long run it deals with the shortage by raising the price of the scarce commodity high enough to induce increase in supply (Ekins, 2000). Recent work has shown that beyond a certain level of income, some aspects of environmental quality improve with further monetary economic growth, a relationship that is depicted by the Environmental Kuznets Curve (Ekins, 2000). Human sustainability will depend more on environmental conservation and less on monetary economic growth requiring preservation of communities in inclusive terms, rather than exclusive or specialized terms of monetary economic globalization (Shin, 2005, 1117). Thus, the degree of industrialization maybe and often is the consequence of rather than the cause of the level of prosperity. Hence, it is a questionable proposition to use "underdevelopment" and "nonindustrialisation" as synonymous terms (Haberler, 2008, 55). Thus, the whole question of interrelationship of monetary economic, money supply and social development became important with governments trying to assume increasing responsibility for the promotion of social progress and monetary economic growth. There was, however, a large measure of conflict and difference on the question of allocation of resources for programmes, which are either monetary economic programmes with social purpose, or social programmes with monetary economic purpose or integrated programmes (Ekins, 2000). In this phase, very few, even among the most ardent advocates of the application of market principles to development would deny that there is an important role for the state in monetary economic development especially in the areas of human development through health, education and the like (Shin, 2005, 1126). Chenery showed that the market would fail to coordinate if there are elements of increasing returns. From the perspective of development, the concept of increasing returns seemed to offer and endogenous explanation for monetary economic progress (Haberler, 2008, 51). Other theories such as, the theoretical growth model of von Neumann postulated that with a constant real wage, growth is maximized when prices are such as to make the profit-rate equal to the growth-rate (Dobb, 1979). Seers proposed that poverty, unemployment and inequality, all need to be reduced below an appreciable limit to term a period as the period of development for a given country. Kalecki argued for dramatic land reforms and other major institutional changes as a means to achieve monetary economic progress (Shin, 2005, 1125). It was understood that there is a pervasive influence of trade on the distribution and growth of resources and its role in widening people's access to alternatives (Haberler, 2008, 52). Contra-structuralism led to a revival of the trade theories of development. Meier (2000) notes that the potential rate of development of an monetary comfy is determined by the relaxation of four constraints, viz. savings, foreign exchange, human resources and agriculture. But the economy's actual rate is below the potential because of inappropriate policies. The 'super constraint' is management - both private and public. Appropriate policies must be undertaken to mobilize resources, allocate the resources efficiently and raise productivity. By so doing the actual rate of development can be brought closer to the potential rate over time. Another point of view that has steadily gained grounds over the past few years is that economic development must always be placed in a setting of overall cultural change (Alpert, 2007, 134). The process of economic development constitutes the dynamic as well as the core of cultural evolution. In explaining the process of economic development, the focus should be on the advance of useful knowledge, which in its application and innovation appears as technology and in its store as culture. The methodology to explain economic phenomenon and the process of economic development in the framework of cultural evolution is called cultural economics (Alpert, 2007, 126). The New Institutional Economics or the NIE approach also points out that individual incentives depend upon the behaviour patterns and the cultural norms of the rest of the society. This study is aimed as an attempt to demonstrate the meaning and implication of "economic development" in the history of economic thought. To this end, the discourse began with description of economic development as it was understood by the seventeenth-century mercantilists and physiocrats, the eighteenth century classicists, the early development theorists and later the stage theorists, the structuralists and the contrastructuralists, and some recent developments such as environmental concerns of economic development and cultural economics. Development economics, as noted in the introductory section, has always been overwhelmed by its brethren from mainstream economics. However, the basic approach towards the proper money supply has been ignored. Nonetheless, as this paper points out, concern for it has always been present, since the time human activities have been analysed in the light of their economic significance. A study of the history of development economics is therefore, a study of the history of economic thoughts itself and has to take into account factors that are considered essential for development, such as institutional complexities, resource distribution, and position of values in community behaviour, and conflicts and contradictions of normative assessment (Shin, 2005, 1122). Development economics is a huge subject in which to write a monograph entails a frightening problem of selection (Shin, 2005, 1129). As such the views of quite a few schools, eminent in their stance in economic history, represented by their no less eminent academic patrons remains unincorporated. Examples that may be readily recalled are the English Romanticists, the heterodox school, Marxism and such other schools of economic thought. Nonetheless, it is hoped that the paper has been able to cover thoughts that have had profound impact on the understanding of developmental economics over the ages and its influence on human welfare. Literature relevant to the present study indicates the need for a multi-country and multiinstitutional investigation of development economics. Indeed, future research should move away from monoeconomics to hetero-economics and adopt the same in its methodology. In this context, two immediate proposals for future studies in the area of development economics would be: (a) a more structured discussion of the methodological issues of development economics including the existing theories, and (b) a focus on interdisciplinary aspects of development economics. It appears that a gap in research still exists with respect to structural Marxism as propounded by Althusser and his followers. Furthermore, development economics has been dominated wither by 'particularists' or 'universalists'. There is an urgent call of meso-level research in this area. Finally, issues concerning the global environment and its sustainability also assume a great deal of significance and can become an area of possible future research. References Alpert, P. (2007). Economic development: Objectives and methods. London: Collier Macmillan Ltd. 100-150. Ekins, P. (2000). Economic growth and environmental sustainability: The prospects for green growth. London: Routledge. Haberler, G. (2008). Integration and growth of the world monetary economy in historical perspective. American Economic Review, LIV, 50-60. Hahn, F. (2001). The 'exogenous7 in 'endogenous7 growth theory. In L. F. Punzo (ed.), Cycles, growth and structural change: Theories and empirical evidence. London: Routledge. Meier, G.M. & Rauch, J.E. (2000). Leading issues in economic development (7th ed.). New York: Oxford University Press. Shin, J.S. (2005). The future of development economics: A methodological agenda. Cambridge Journal of Economics, 29(6): 1111-1128 Periodical Read More