Classical (with Marx) Flashcards
commercial crisis - fall in goods exported to europe –> prices fall
Navigation Acts - restrict trade with colonies –> could only export agri to Britian and only import final goods from Britian
Theory: In his calculations, Petty came up with the idea that return on assets must be equalised (used by many classical authors to come) (r=5%). He calculated the value of the labour stock as the the total wages in the country (£26m) / 5%. This = £520m. The divided by population to find value per person. This calculation method could then be used to compare value of nations.
BUT, many assumptions so limited accuracy.
Show that wealth of country is greater than what people believed it was at that time. Highlight that he used maths
petty = mercantilist
Physiocracy - agri is only productive sector as only sector which can produce a surplus.
Tax landowners as they dont contribute to surplus
Enlightenment –> ideas of liberty –> lead to English, French, American Revolutions in the future
laissez faire - no govt intvn & free trade - leaving human enterprise alone leads to positive progess <- comes from Enlightenment ideology
Tax on landowners!!!!!!!!!!
Manufacturing is valuable as it enables labour to be stored and available for use in times of need.
- more labour in manufacturing –> more manufacturing goods produced –> **more commerce **–> more value accumulated (due to labour)
Strength of state = labour + commerce
this context also applies to Smith
Basically kind of saying that the more labour not employed in like necesseties (agriculture) the more avaialble labour which can be called upon if needed. But if everyone employed in agri then little to no room for labour to fall or in trouble if demand for labour in agri rises
Opposed merc policy and then highlight that this leads to manufacturing moving abroad
DATE IS WRONG - 1759 IS CORRECT
highlighting that people rely on eachother for necessities through trade so in a commercial society we dont need to love eachother but focus on self interest result in society development
Scotland unionising with ENGLAND NOT UK
Policy: Economy is better off being guided by the “invisible hand” – An invisible force that translates the self-interest of individuals into promoting public interests
- Division of labour –> specialisation –> higher dexterity (quality) and quicker (quantity)
- Cant tax productive labour as less benefits to the division of labour
- Minimal govt intervention as seen as “unproductive” - this includes removing the poor laws as restricts labour mobility
- Govt shouldnt award company priveleges as this can help Foster effective competition, encourages more entrepreneurship and innovation, more employment, and specialisation –> widens the market more econ growth
Can mention link to Scottish Enlightenment where individuals encouraged to think freel and come up with new ideas but division of labour adversely impacts this.
Smith against govt intvn –> remove priveleges awarded to companies -> foster competition –> encourages innovation and entrepreneurship –> widens the market. This can help counteract this critique
Smith’s labour theory of value “Command over labour” states that a commodity’s value lies in the quantity of labour it can command (i.e., how much other people’s labour it can purchase in exchange).
In simple economies (without wage labour or capital), this aligns with the 1st version labour theory of value “labour content” — commodities exchange based on equal labour input.
In modern capitalist societies, this equivalence breaks down because workers are paid less than the value they produce, as profit/rent is given to capitalists/landowners.
Therefore, the value a commodity commands in the market differs from the labour it contains so need to construct labour embedded in land + labour embedded in capital + workers labour
Critique - labour produces machines which then produce final goods - how do you quantify labour in the final good?
Can say while there is no direct policy implication - regarding labour smith had argued for comp –> employment rises, poor laws…
Critiques: Components of price are themselves prices which need to be determined. If these prices are determined by other prices then how are these determined - vicious cycle (Ricardo)
Can mention profit rates across industries should be equalised in the long-run at its natural profit rate. I.e., if profit rate higher in agriculture, more capital deployed capturing profits until profit rate is lowered
Link to quote 6 -
highlighting that people rely on eachother for necessities through trade so in a commercial society we dont need to love eachother but focus on self interest result in society development
French Revolution had prev happened (1780’s)
Supply doesn’t necessarily have to fall.
Producers will decrease prices which can lead to increased demand fixing over supply or
when prices fall -> profitability is lower –> firms in this industry leave –> quantity in industry falls -> no oversupply
England become a net importer of grain
Policy - Malthus believe the poor damage the economy as they demand food but they dont contribute to producing food
Different to Smith, Malthus believes that landowners can be “productive” and be considered as capitalists with their profit being rent. He believes landowners should reinvest into improving the fertility of land which can help in reaching a higher SS. Malthus only believed that land can increase its productivity (not labour and capital).
Criticism - ignored effects of tech innovation which can help increase the rate at which food production grows
Malthusian trap: In “good times” population growth occurs –> demand for food and labour supply rises –> real wages start to fall –> individuals have to work harder or more jobs to maintain their standard of living –> stop family planning –> population growth stops/declines –> at the same time as workers need to work more jobs and wages are lower –> more labour hired in agriculture –> food production increases to meet the new population level –> return to intital steady state
AC of production not AC of landowners.
Dont say landowners charge higher rents but maybe landowners rent bill rises
Ergo, as these landowners of less fertile lands are charging rent but the AC are higher of this rent, this basically means that the share of income to landowners rise. This part is just to help with my understanding
Not constant so this is a stronger version than the modern version of diminishing returns
Very similar context to Malthus (were friends)
- poor working conditions give rise to trade unions for the first time after repeal of combination laws (time where free market forces were preferred)
- technological unemployment arising from IR
- Napoleonic wars had occurred (1804-1815) - post war period characterized by poor harvest
- Reform act meant voting rights extended to men with businesses –> becoming more democratic
Arguing technological unemployment can arise as a result of economic expansion. Ricardo initally believed this was impossible to occur as technological advancement increases productivity, output and epmployment.
Agrees with Say’s law ergo markets are self-regulating don’t interfere in markets gradual abolition of poor laws increase incentives to find work help self-regulating mechanism work
Due to comparative advantage Remove corn laws which placed tariff on imported corn allow cheap import and we specialise in other goods which we have a lower cost ratio then trade –> increased specialisation can lead to more employment opportunities
Ricardo takes bullionist position –> believes QTM –> if prices rise this causes inflation –> exports less attractive –> benefits of comparative advantage fall. Moreover, inflation will further increase cost of production can lead to further tech unemployment. Therefore, should restore convertability
Against state expenditure –> seen as unproductive and crowds out private investment (like Smith) –> can lead to expansion and more employment
Abolish corn laws which placed tariff on imported corn allow cheap corn import and we specialise in other goods which we have a lower cost ratio –> increased specialization –> higher growth. Then can say that also cheaper corn means higher profits …
light touch on taxation and preferable to tax rent and luxury goods as unproductive (although landowners could use rents to reinvest into land). Dont tax wages (higher cost of production) or profit as leads to lower profits –> less investment –> lower econ growth
opposed to increasing money supply –> believed in QTM –> money supply rising causes inflation –> exports become less attractive –> benefits from comparative advantage diminish & harms balance of trade –> Therefore, Ricardo is bullionist and believes we should go back to convertibility –> money supply linked to gold reserves to limit money supply and inflation
RATE OF PROFIT IS KEY DRIVER OF ECONOMIC GROWTH
On bullionist bullet point can say that Ricardo believes in quantity theory of money –>ergo, M rising causes inflation–> convertability–>ensures money supply rises sustainably–> no excessive inflation and balance of trade wont worsen and benefits of comparative advanatge wont fall as wont have less attractive exports
abolish corn laws -> cheaper grain import –> lower cost of production –> rate of profit rises –> econ growth
don’t say “rent is disregarded as it is not an active factor”
Mill agrees with Ricardo that relative prices reflect capital labour ratios (amount of each input used in production) goods which command more K and/or L command higher price
Unlike Ricardo, Mill doesn’t want to entangle labour and capital to find a standard unit of measure (like Ricardo did by reducing capital to labour). ergo, rejects Smiths index-number problem
- First bit of the quote highlights that if the relative price is higher this reflects that more K and/or L is required.
- Lastly… , is where Mill introduces risk/speculation
Profits can be reinvesteed as state should act as a “civiliser” not intervene in markets but improve education and cultural amenities lead to higher aspirations of the working people improved distribution of income
suported abolishing poor laws –> reduce aspirations of the workin population
