Classical Theorists

Question 1

Who are the classical theorists and what era did they come from?

Answer 1

Adam Smith, Karl Marx, Thomas Malthus and David Ricardo

Many of them lived through the early stages of the Industrial Revolution (18th and 19th century)

Question 2

What was Smith’s theory?

Answer 2

Adam’s Smith theory is of competitive capitalism and growth

Question 3

What is Smith’s concept of the ‘invisible hand’?

Answer 3

The forces of supply and demand at work in a perfectly or nearly competitive economy

Question 4

What is a competitive economy?

Answer 4

An environment where the individualistic desires of consumers for goods and services, combined with the self-interested drive to maximize profits by the produces of these goods and services will tend toward levels of production and prices - the equilibrium- where the supply curve crosses the demand curve and both consumers and producers gain from the exchange

Question 5

What is the guiding principle behind Smith’s theory?

Answer 5

Self-interest

Question 6

What is the importance of competition in Smith’s theory?

Answer 6

Competition acts as a counter-weight to, and a brake on, the possible excesses that self-interested behavior might engender in its absence

Question 7

What is the the importance of a legal framework in competition?

Answer 7

When competition is threatened by self-interested behaviour, the government must create a legal framework to put in place the appropriate enforcement mechanisms to reconstitute a competitive environment

Question 8

What is the relation of Smith’s theory of the functioning of the market system to development?

Answer 8

Capitalism is a productive system with the potential to increase human well being

He stresses the importance of the division of labour and the law of accumulation as the primary factors contributing to capitalist economic progress

Question 9

How did division of labour arise?

Answer 9

With the Industrial Revolution in Great Britain and the emergence of the factory system which caused the organization of production to change

Division of labour causes an increase in the productivity of labour

Question 10

What does Smith believe to be the sources of expanding economic wealth?

Answer 10

The accumulation of physical capital, technological progress and the specalization of labour

Question 11

What is Malthus’ theory?

Answer 11

Theory of population

Question 12

What is Malthus’ assumption?

Answer 12

That population will grow whenever wages rise about the level necessary for subsistence

Question 13

Why does Malthus believe population will grow at levels above subsistence?

Answer 13

There will be more food and other necessities to go around which means that additional children can survive

Question 14

How does Malthus believe population grows?

Answer 14

In a geometric progression

Question 15

What, for Malthus, is the limit for population expansion

Answer 15

The inability of land to produce sufficient food - agricultural output only increases at an arithmetic progression

Question 16

What are the forces that slow population growth?

Answer 16

Preventitive checks - reduce birth rate through late marriage or abstinence

Positive checks - increase of the death rate through war, diseases and plagues and starvation

Question 17

What did Malthus ignore in his population theory?

Answer 17

The importance of technological progress in increasing productivity and output over the long run

Question 18

What was Ricardo’s theory?

Answer 18

His theories were of diminishing returns and comparative advantage

Question 19

What is the law of eventually diminishing returns?

Answer 19

When economic growth (and thus population) occurs, land of lower productivity is brought into use (after farmers first use the most fertile lands)

As these marginal lands are used, the price of food will rise because it becomes more difficult to produce

The price will remain the same between the output from the less productive land and the fertile land

Economic profits will be positive on productive land

Growing economy will reach a maximum level of income per person then a decline in per capita income (when food prices continue to rise)

Question 20

For Ricardo what could offset the adverse effects of the law of eventually diminishing returns?

Answer 20

Free trade and an open economy

Question 21

What is Ricardo’s theory of comparative advantage

Answer 21

Unrestricted exchange between countries will increase the total amount of world output if each country specializes in the goods it can produce as a relatively low cost compared to potential trade partners

Question 22

What is Marx’s theory?

Answer 22

Capitalist development

Question 23

What was Marx’s criticism about capitalism?

Answer 23

The human cost involved in producing such wealth and the one-sided distribution of the profit

The working class (proletariat) created the wealth through their labour power but the capitalists appropriated a disproportionate share of society’s income

Question 24

What is Barans theory of economic surplus?

Answer 24

Economic surplus is residual left over out of total income when society’s basic needs have been met - this surplus can be grossly misused

Baran argue’s that the source of poverty of less-developed regions under colonialism is in the extraction of this surplus

Colonialism blocked the potential for change

Question 25

What does Baran think are the 3 forces that could increase economic surplus and use it for economic development?

Answer 25

National capital, foreign capital and the state

Question 26

What did Cardoso (non-Marxist) think were the stages of economic history in less-developed countries?

Answer 26

1. Agro-export state of the colonial period (prevalence of economic dualism)
2. Developmentalist alliance - locus of this transformation was import substitution industrialization (ISI) - social structure of accumulation had been formed on the basis of common interests of industrial workers, industrialists, government workers etc
3. Authoritarian- corporatist regime - curbs on democracy, unions etc - TNCs welcomed and accomodated

Question 27

What is the new form of capitalist accumulation that arises out of the authoritarian state and presence of TNCs?

Answer 27

Associated dependent development