Key differences between radical political economy and neoclassical theory Flashcards
How do heterodox and Neoclassical differ in their view of production?
The heterodox views place considerable emphasis on the organisation of the production process whereas the neo-classical approach stresses exchange rather than production.
How does neoclassical economics treat institutions?
Neoclassical economics is to a large degree institution free in the sense that it is intended to have universal applicability and it has not sought to reflect particular institutional arrangements in it’s theories.
How has neoclassical theory attempted to integrate institutions?
Neo view the institutional arrangements as reflecting the optimising choices of individuals, that is institutional arrangements reflect individual choice
How do institutional economists approach the influence of institutions?
They stress the impact of existing institutions on individual behaviour and the gradual evolution of institutions but without any implication that institutions are in any sense optimally designed
How is profit generated in the neoclassical approach?
The rate of profit can be seen as set by the interaction between the demand and supply of capital. Capital equipment is seen as raising production levels by the marginal product of capital. On the supply of finance side, the individuals supplying finance are seen as abstaining from consumption.
What is the rate of profit according to neoclassicals?
The interaction between the productivity of ‘capital’ and the disutility of abstaining from consumption.
How are capital and labour treated in the production process?
Capital is on par with labour as both add to output and both involve a disutlity
What is a disutility referring to?
Abstinence from consumption and working. It is notable that the disutility of working is regarding as being of a quite different order of magnitude to the disutility involved in abstaining from consumption
Why do profits through a surplus theoretically create higher investment?
Retained profits provide the finance for investment and higher profitability also incentivises higher investment
How are larger profits without wage increases defended in the neoclassical literature?
Extra profits provide the finance for investment, this illustrates the link between profits as a surplus and investment as resting on a surplus of output over consumption. While an increase in wages may result in an increase in consumer expenditure, an increase in profits may lead to an increase in investment
Why is the idea of growth in neoclassical economics flawed?
Because growth involves change in many different ways thereofer an approach that analyses gowth as an equilibrium process which tends to suggest tranquility is unlikely to be very fruitful. Furthermore, the idea of a balanced growth path does not follow the patterns in the real world as some sectors are expanding very quickly at a rate which cannot be sustained forever
How does the idea of growth differ between heterodox and neoclassical viewpoints?
Hetero: economic growth involves the creation of additional resources and in turn improves human economic welfare.
Neo: Growth is simply the improvment on allocative efficiency in the use of existing resources
What is the link between profits investment and growth?
Profits are the major form of savings from which investment is finance; growth requires a growth of the capital stock which is net investment. Thus growth requires savings which arise out of profits. But the other way round, profits require growth as if there was no growth then there would be no outlet for savings and no need for profits out of which savings are made
What is the key difference between Neo and Marx?
The conflicting interests of different social classes are redundant in neoclassical economics as the focus is placed on the individual
Why is the distribution of income important?
The factor distrivution of income, especially the share and rate of profits is likely to influence the determination of savings investment and growth. Furthermore, the allocation of education and healthcare also have important impacts on the productive capacity of workers in turn influencing the growth potential of the economy
