History of Economic Thought
Answer to Question 1
The history of economic thought is on different economic thinkers. Adam Smith was one of the greatest initiators of economic though but his contributions were taken over by people often referred to as pre-Adamites. Some of the great contributors of economic though were people like Bernard Mandeville, Thomas Mun, and Richard Cantillon. Their contributions are remarkable but the three contributors had varying philosophies. Their contributions revolved around fields like political economy and economics. The factor contributing to their differences is the establishment of different schools of thought that had different but similar philosophical arguments about political science and economics. All the authors based their thoughts on Adam Smith’s philosophic. Adam Smith is in fact considered the father and founder of modern economics. His predecessors were only developing his ideas especially in the 18th century.
Thomas Mun was an English businessperson from 1517 to 1641. His contribution to the modern economics is mainly viewed through his representation of the early mercantile policy. The policy was stated in his book, “The England’ Treasure by Foreign Trade.” Published in 1664. This contributor to economic thought on international trade was a member of East India Company and widely wrote about the experience he had in this kind of trade. Mun established that England treasure could only increase through trade and by treasure, he meant the country’s national wealth. Thomas Mun went on to suggest courses of actions that England could take to increase its wealth through trade. In his suggestions, Mun pointed out that imports were frugal in consumption and could increase the volume of goods that a country has for export. Imports also would contribute to the utilization various domestic resources including land as the key factor to production. He pointed out that if countries consumption is done in a way that there is no waste, the country would have utilized resource and extra good that can be exported to earn different goods that would in turn add to the country’s treasures. Frugal consumption utilizes the factors of production creating surplus for exporting (Fusfeld, 1988). If such resources are utilized, import requirements are reduced and export of goods would have inelastic demand given that more money is probably made from the higher prices viable (HobsBawm, 1954).
Bernard Mandeville on the other hand contributed a lot on the functioning of markets. He is identified to have had problem in situating his work with development of laissez-faire theory. He was born in Rotterdam in 1670 and he grew to be a contributor of the function market mechanisms as part of economics (Fusfeld, 1988). He made much contribution to the laissez-fair economic theory and advanced many aspects of the modern economics alongside free market economic theory and mechanisms. He suggested and put emphasis on the way conduct patterns emerging from individual ego clashes and guide politicians to influence their social lives. This means that he also contributed to political economics. As a philosopher, political economist, and a satirist, his contribution to philosophy was wide. His philosophy was offensive at the time due to his satirist trait. He could point out that actions of men could hardly have two divisions as lower division or upper division and that a man’s higher life is only fiction introduced mainly by rulers and philosophers (Howell, 2013). He established that divisions among people are done to simplify governments and generate relations within societies. He could point out that virtue is detrimental to a country or society in its intellectual and commercial process. According to his economic philosophy, vices where the best way people or societies progress through activities that initiate inventions as well as economic activities, which he called circulation of capital. Vices would lead people to luxurious lives and could stimulate a society into progressive actions (Howell, 2013).
In the case of Richard Cantillon, his contributions are significant to make him referred to as the founder of political economics. Today, many Australian insights are based on the economic concepts of Richard Cantillon (Jevons, 1957). He was one of the founders of marginalized revolution. He wrote several manuscripts about economic theory and concepts but the most remarkable was the, “Essai Sur La Nature Du Commerce En General,” or the Essai, which was published in the French language in 1755. This publication had a significant influence on economics and economic science but his treaties where neglected during the 19th century but rediscovered towards the end of the century. The rediscovery was done by William Stanley and considered it the birth of political economy making Essai gain significant attention. Essai, written by, Richard Cantillon, was the first treaties that were complete and addressing economic theory. His contribution to political economic and economic theory is largely used in today’s economics. The aspect of enterprise economics is also based on Richard Cantillon (Polanyi, 1957).
The three economic thinkers contributed much on economic enterprise and merchandise. They believed that economic enterprises involved exchange of goods and services and utilization of resources. Cantillon assumed constant equilibrium and evenly rotating economy in which a society cannot entirely rely on its production alone and has to trade with other nations. Thomas Mun had the same idea in which England could benefit more by trading with other nations and that and enterprise was not based on a large-scale production. Bernard Mandeville suggested on the issue of market mechanisms and the way people could be influenced by the interest of a few superior politicians or merchandise (Polanyi, 1957).
Answer to Question 2
The school of thought known as the School of Political Classical Economy was largely supported by Adam Smith, David Ricardo, and Karl Marx. The dimension in this school of thought are centered its developments and the end of the classical political economy. The school thought was based on capitalism, which still exist today (Polanyi, 1957). In capitalism, profits were the main idea of producing goods and services and the product produced should have a value in both consumption and exchange. This is a rule in economics in which case without the essence of gaining from production, there would be no economic growth or economic development. The Classical economic thought was focused on resource utilization even if it meant the oppression of labor. Labor payments were to be structured in a way that the value of labor is more than its compensation (Rothenberg, 2005). These aspects created combination economic aspects both positive and negative such as markets, pricing mechanisms, economic crises, unemployment, and well as the concept of interest rates. This schools reflected economic development in the material world. The school derived the nature of money and exchange value of goods or uses value (Polanyi, 1957).
From the nature of money and production of goods and services, consumers have to consume a product and can offer a price that is lower than the product value according to their perception but the producer’s value is actually higher than the value of the good. The value is generated by labor value and the cost of the other factors of production. In this case, the higher the cost of production the higher value of the product. Little was centered on product quality since a capitalist want to benefit from the factors of production, including labor, as much as possible (Richardo, 1953). There is as well the concept of social capital, which also creates a useful value in that the society will create a value produced through demand and consumption. Without consumption, there would be no trade and hence no production. Beside these values, there is the concept of surplus value, which generates profits and interests of enterprise. There is no much on future attributes of the economy but increased production is mainly done to generate private capitals. The main essence in this case is capital accumulation but hardly on capitalist production. This attitude went on and changed from a capitalist form of enterprise to an enterprise where consumer wants and quality of labor guide production (Marx, 1976).
Adam smith introduces the notion that labor is acts as the source of commodity value. He creates the notion that a commodity has an exchange value and use value. With the exchange value, Smith implies that commodities are exchange for other commodities or money to gain from the extra value from such a commodity (Jevons, 1957). Exchange value exists in a commodity is the owner of the commodity is bound to gain in the exchange. This value is generate by the value of labor employed to produce the commodity. Similarly, use value is the value perceived by the consumer on a product the value is viewed from the perspective of the consumer to pay a price, which is considered parallel to the commodity or service value. If the value of the product were less than the price of the product, the buyer would turn down his or her offer to purchase it.
In his 1976 publication, “An Inquiry into the Nature and Causes of the Wealth of Nations,” Smith reflects over the economy during the industrial revolution and touches on division of labor, productivity processes, and free markets. He describes what build up the wealth on any nation under the classical though framework (Jevons, 1957). According to smith, division of labor leads to increased production and that this aspect makes labor more important than any other factor of production. For this reason, value is mainly related to labor. Division of labor is brought about by advancement in human ability and specialization and leads to a better quality of labor from which value is generated. Ricardo on the other hand considers value of commodity depends on the quantity of labor necessary in producing the commodity. There is a disparity is this case since smith considers the value of a commodity, which could be exchange value of use value, to be based on quality of labor (Richardo, 1953). This quality of labor comes about through division of labor. Contrary to Smiths argument, Ricardo’s view is that value of a commodity is based on the quantity of labor used in the production of the commodity. Exchange value will then depend on the quantity of the other product in the exchange (Fusfeld, 1988).
According to Marx, a commodity has to fulfill some need in order to be exchanged, which creates subjectivity and qualitative aspects hence describing a commodity’s use value. Exchange value is created from the notion that commodities to be exchanged must have some common traits and the nature of production and labor necessity is a common aspect of all products. Exchange value is based on labor requirements while use value is based on subjectivity and the product’s qualitative aspects. The three classical thinkers base the value of products on labor as the main factor in production. Marx differs from Ricardo in that he considers value associated with quality of labor initiated by division of labor. Ricardo sees value as to be generated by the amount of labor employed while Marx considered value to be influenced by a number of factors including labor in general and subjectivity of the product (Marx, 1976).
Answer to Question 3
The Neoclassical Revolution was about developing ideas of the classical school of though and objecting some ideas that were harmful or not applicable in the modern economics. The work of Jevons and Jeremy Bentham has some similarities and idea exchange as far as the idea exchange on neoclassical revolution is concerned. Jevons’ publication, “The Theory of Political Economy,” is mainly on political economy and utilitarianism . The “Principles of Economics,” publication by Jeremy Bentham similarly is on economic though arguing ideas of Adam Smith, Richard Ricardo, and Karl Marx (Howell, 2013). Jevons on his utilitarianism is building on a mathematical theory in economics and part of the work done by Jeremy Bentham in his publication, “Principles of Economics.” In this case, Jevons uses felicific calculus as an instrument of transforming economic sensations into economic quantities. Jevons uses Jeremy Bentham’s calculus although he makes use of this concept in a simpler manner. In is way, he is introducing the mathematics concepts in his political economics theory. Jevons’s theory of utility can hardly be presented without a mathematical concept. The earlier concepts of utilitarianism were based on moral aspect by as part of the neoclassical revolution, Jevons had to abandon this moral concept and borrow the mathematical concept from Jeremy Bentham (Marx, 1976).
According to Jeremy Bentham, utility is the principle that tells whether something is right or is wrong according to the action taken in gaining or producing it. Utility approves or it could disapprove an action according to its aspect of diminishing the happiness of the person seeking it from a commodity or service. People intent to gain benefit from the aspect of property in anything that has value and the benefit is in form of advantages, good, happiness, or pleasure. Utility happens with all attempts to avoid the bad side of something. Bentham takes utility as a moral concept and people looks at valuable things from the positive side and employ moral actions to gain benefits from the valuable commodity or service (Polanyi, 1957).
Bentham’s idea of utility is subjective and based on the idea that utility achieved with respect to persons moral attitude. In his concept of utility is a moral phenomenon without any aspect of measure. He is more concerned with legal reforms and morality about people’s actions to achieve utility from what they do. He establishes that there is an underlying principle of morality on which people base their actions (Jevons, 1957). His concept of utilitarianism brings the idea of consideration of happiness of the majority in an action measure the action in terms of whether it is right or wrong. The concepts of Bentham in utility as a key concept in economics are not measurable but rather, they are subjective. In economics, neoclassical thinkers provide economic concepts that are measurable. Economics hardly considered issues of morality but the laws in business are established to play a role in ensuring fairness in business operation.
Concepts of economics such as fiscal policies are based on business laws whereby the economy is control through condition but not by free mechanisms. Utility is measurable and involve quantitative analysis by a consumer before making decisions on his or actions in purchasing a commodity rather than looking at the moral side of his or her actions. Jevons presents a quantities concept of understanding utility and h drops every idea about the moral concept of utility. If people would fully consider the moral concept of utility, some commodities would not be acquired or purchased (Jevons, 1957). The actions initiated towards the acquisition of a commodity of service are based on the factors like quantity on the product or service, the amount of benefit derived, the amount of satisfaction aspired or expected, and the cost of acquiring the utility. These aspects of utility make Jevons drop every moral idea about utility and incorporate the quantitative measures in establishing the utility derived from a commodity or product (Jevons, 1957).
This analysis on quantities idea of utility is better than the moral principle towards utility by Bentham. The economic world today is full of measurable ideas. Unlike in the classical time when theories where hardly quantitative, neoclassical revolution was established as a way of rectifying the mistakes made by classical economic thinkers. Almost all economic theories have a sense of mathematical concept since economics is based on quantitative analysis of economic events and future trends in economics. It would therefore be difficult to get information about one satisfaction based on the happiness his or her actions have generated on other people (Polanyi, 1957). Utility is a personal phenomenon and an individual would gain utility from a commodity based on various factors other than morality. A person’s level of satisfaction depends on measurable aspects such as the price of a commodity or service, which will determine the person’s level of real income. The quality of service comes in as well as it would be defined by the monetary value placed on the commodity by the consumer. The quality of product is measureable in terms of the level satisfaction derived by the consumer for each unit of service or commodity consumed. The quality may increase the quantity consumed of the product. The most important aspect is the budget constraint of the consumer, which determines the optimal level of satisfaction that the consumer can achieve given the budget constraint. This means that Jevons’s concept is better than Bentham’s moral concept as far as modern economic is concerned. It incorporates all aspects of calculation and computation in economic decision-making processes.
References
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Marx, K. (1976). Capital (Vol. I), trans. by B. Brewster. London: Pen”uin.
Polanyi, K. (1957). Great transformation . Boston: Beacon Press.
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