The B. Roots of Modern Economic Systems 1. Classical and Marxist Theories of Economic Change
Why and how does economic change occur? Is economic change essentially technological in nature, or does it either rely on or cause soci al and political change? Is it revolutionary or evolutionary? Gradual or sudden? Can it be explained as the result of a rational process? Is it convergent or divergent?
2. The Historical Development of Capitalism 3. The Marxist-Leninist Critique of Capitalism
The Classical View
Change is a gradual process Growth is primarily a function of capital accumulation Tendency toward equilibrium Ricardian/Malthusian Dialogue Malthusian model: population growth, the iron law of wages, diminishing returns, and the dismal science. Ricardian model: economy will eventually stagnate. Rising food costs, rising land rents, rising nominal wages, falling profits, falling investment rates (worsened by proportional depreciation.)
Contrast with Neoclassical View
The neoclassical view is much more optimistic. Same view of gradual, equilibrating change, but growth can be perpetual. Growth is a gradual result of:
1. investment in physical capital 2. technological progress resulting from the incentive to invest in research and development 3. improvements in human capital resulting from individual incentiv es to invest in skills and education 4. improvements in efficiency resulting from efforts to increase pr ofits.
Market economies with clearly -defined property rights and a minimum of government intervention are best able to provide the best incentives that lead to economic growth.
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Neoclassical economists are also much more optimistic about the problem of population growth. The decision to have children is a rational decision based on tradeoffs, not the product of uncontrollable breeding. As the opportunity cost of having children rises with an increasingly urbanized, industrial society in which both men and women may work, people may (and often do) choose to have fewer children. Furthermore, population pressures increase the incentive for doing things more efficiently.
An Aside: international trade and finance has a potential role in neoclassical view:
Firms are encouraged to produce more efficiently, and economic growth
occurs from specialization and exchange. An international division of labor leads to overall gains from trade that are shared among nations. The flow of goods, services, and capital countries between favors higher returns and lower costs. As a result the forces of supply and demand tend to lead towards an equalization of prices, wages, interest rates, and policies across nations, and thus tends to lead towards increasing economic convergence. Governments of countries which engage in global competition are less likely to get away with government intervention, since markets punish countries with inefficient policies (e.g., capital flees countri es with high taxation or unstable monetary policies).
Marxist Theory of Change
Karl Marx, Das Kapital Economic change is a evolutionary (even revolutionary) process, and one which determines social and political structures. Based on Georg Hegel's idealist philosophy of the dialectic: conflict between thesis and antithesis leads to synthesis a struggle between opposites. Marx saw history as determined by materialism and the struggle between socioeconomic classes. In historical materialism, productive forces determine the relations of production, which in turn determines the superstructure.
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Marxist Theory of Change (2)
The dialectical process is that as productive forces change, contradictions between productive forces and the relations of production emerge and accumulate. Eventually, this leads to qualitative (sudden and noticeable) change over a relatively short period of time (e.g., tectonic movement and earthquakes). Like the Yin and Yang of Chinese Daoist (or Taoist) philo...