Notes on Smith, Ricardo and Marx Flashcards
(38 cards)
What did Mercantilists believe in in terms of wealth?
that wealth (and hence national wealth and progress) was measured in terms of gold reserves
(Mercantilisim) The aim of national governments therefore should be to facilitate the accumulation of gold. What would that have required?
Promoting exports (you would be paid in money/gold) Restricting imports (money/gold would flow out of the country)
What did Mercantilist policies advocate?
restricting trade, primarily food imports – using customs charges etc. An effect of this was to raise food prices. Subsidies to exporting manufacturers were also consistent with the Mercantilist view.
From a Mercantilist viewpoint what was trade?
a zero-sum game: the exporter gained, the importer lost. There were not mutual gains.
The object of government policy was to increase state reserves of gold by maintaining a trade surplus (exports-imports)
What did Physiocrats believe in in terms of wealth?
that the only real source of wealth was Agriculture – that’s where real, net, growth occurred. The emerging Manufacturing sector was just changing the form of objects, not creating anything new.
What policies were consistent with the Physiorats’ view?
involved supporting the Agricultural sector and slowed down the growth of Manufacturing.
What did Smith argue in favour of?
He argued in favour of specialisation and exchange and trade and the emergence of the new commercial and manufacturing sectors.
For Smith what was trade?
trade is not a zero sum game – both parties can benefit. Self-interest underlies the propensity to trade but there is a mutual interest in specialisation and trade
What is the ‘Labour Theory of Value’?
The value of a good depended on the amount of labour that has gone into its production: since only labour can add value (to inanimate objects like minerals or timber).
What was a necessary prerequisite for a good to have value for Smith (and others)?
For Smith (and others) a necessary prerequisite for a good to have value was for it to be the product of Labour:
What is the excange value of a commodity?
The Exchange Value of a commodity is the Quantity of Money to be exchanged for it. But money is something that fluctuates (gold, silver) so it was not considered to be a true measure of value.
What is the Subjective Utility Theory of Value?
“[goods’] value is wholly independent of the quantity of labour originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them.” David Ricardo (1817)
What became known as the Marginal Revolution?
The rejection of the LTV and its replacement with a Subjective Utility Theory of Value was part of what became known as the Marginal Revolution: in neoclassical economics marginal concepts (marginal product, marginal cost, marginal utility,…) were central.
We can think of 3 classes when concerned ith the question of the distribution of wealth?
Workers provide Labour (L) and receive Wages (w)
Landlords provide Land (N) and receive Rents (r)
Firms/Capitalists provide Capital (K) and receive Profits (s)
For Smith what is the market price?
For Smith the market price is whatever price operates at that time in the market.
What did Smith regard as the Natural Prices of land, labour and capital?
Smith regarded the prices that are at the level that would provide just enough incentive to keep doing those things, just sufficient to keep workers, landlords and capitalists engaged in that activity, as the Natural Prices of land, labour and capital.
What is the Natural Price of a good?
when the resources or factors going into production are all being paid at their natural rates (the rate just enough to keep them in that activity).
the question: What happens to Rent as we add more labour + capital to increasingly less fertile land?
The result of the analysis that as land is the scarce, fixed resource, the share of national income going to land is always going to rise.
The final equilibrium in Ricardos model (Ricardo did not use this term) is where:
wages are paid at subsistence rate
all the surplus above that wage cost is rent
profits are squeezed
What is the central point of Ricardos model?
As land is the scarce, fixed, resource the share of national income going to land is always going to rise.
The dynamic class, that which was generating growth were having their profits squeezed out.
This he thought had major implications.
What were the proposals that followed after Ricardos model?
The proposals which followed were to reduce rents - reducing trade barriers, such as import tariffs, which would lower price of grain and reduce rents and the share of national income going to Landlords.
This linked to the campaign for the abolition of the Corn Laws – politics and economics were intimately linked.
Was Karl Marx a believer in the labour theory of value?
Yes
What is the key concept of the Average Socially Necessary Labour Time (ASNLT)?
The meaning of “ labor ” here is the average amount of work needed to produce each commodity. The different skill levels of individual workers are averaged to determine what Marx called “ the socially necessary ” labor needed to produce each commodity. That average, not each individual worker ’ s productivity, is what determines each commodity’s value. (Wolff and Resnick, section 4.4.4)
What are some key processes in the economy (Marxist Economics)?
Workers sell Labour Power (LP), as a Commodity in the labour market, receiving money (M) in the form of wages in return;
Capitalists buy that Labour Power (LP) and combine it with Raw Materials and Technology/Machines;
Capitalists thus create goods which they sell for money (M)
