The History of Economic Thought

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Jeremy Bentham is one of the most influential philosophers of the 18th and the early 19^th centuries, he propounded many significant insights that sought to determine t role of the state in economics and among key among them was utilitarianism. According to Bentham, the government should act similarly to what the French physiocrats called laissez-faire. He summarized this by saying that the government should either be quiet or stay out of his sunlight (Roll 353).

According to him, the state should not try to show favor, but rather create opportunities for people to thrive. Essentially, according to this thinking, the theory capitalism is founded. Bentham propounds that both the intelligence and power could be administered by the government at a relatively cheap rate. Furthermore, if reward is to be skillfully applied, the result is often bound to be characterized by a great deal of knowledge.

In many situations, the only requirement is simply the elimination of coercion that normally occasions government involvement in business. According to Bentham, with only a few exemptions, the reality is that the maximum degree of success and enjoyment can only be realistically expected if each is left at their own devices so that they can pursue happiness to the means available to them (Roll 355).

However, Ricardo was open to the idea that there should be a limit on the extent to which professional and economic advice could be applied in matters of the government. He reasons that as far as the direct perception of economists was concerned, the main targets were money, banking and foreign trade. The fact that foreign trade as example has been retrospectively understood in a limited sense is a piece of evidence of the limited scope of projecting economics to government.

One of the main doctrines by Ricardo has a bearing on the theory based on the development and fluctuation of economic activity. In his theory, he further discourses on the effects of technical development. When he published his principles in 1821, he introduced a new chapter titled “On Machinery”, where he discoursed the views of those contradicted theories that were in existence in his time, many of which he had retrospectively subscribed to (Roll 298). The chapter offers important insights about various theories in economics.

Although Mill was in agreement with Coleridge’s strictures on the laisser-faire principle, which was also underlined by Bentham, he was of the opinion that considered the role the state had played in providing services for the people, such as security infrastructure. It should not be entirely precluded in the efforts to improve the material wellbeing of the citizens so as to ensure the facilities it provides are well developed and used, this is a factor that underpins his departure from “bethanism”.

Nevertheless, this departure was only partly influenced by the romantic notions as well as traditionalist influences of Coleridge and Comte (Roll 354). He was familiar with the works of early English and French socialists and appeared impressed by their opposition of capitalism, in a sense, his discussion of their property critic was primarily sympathetic.

Keynes, on the other hand, made it clear that he did not perceive government involvement in economics in the conventional sense. According to him, it played the role of a helping hand to the systems as opposed to seeking to control or manipulate it. He was more concerned with issues of how much state expenditure should be used in given situations and for how long such assistance should be facilitated.

Say’s theory proposes that a general over production of glut capital in the industry is impossible given that products are paid for and with other products, ergo, hypothetically a glut will only occur if there are too many means of production applied to one product as opposed to another. His justification for arguing that glut is impossible in a rational market is the fact that a businessman will not hoard money since its values can be considered perishable.

One of the theorists who critiqued this theory was Ricardo, who was involved in a dispute with Malthus that became one of the most renown ones in the history of economic discourse. According to Ricardo, a fall in profit rates that accompanies capital accumulation can only be seen as a temporary phenomenon resulting from a delayed assertion of the principle of population. Notwithstanding, he maintains that historical tendencies, such as a reduction in the profit because of the principle of diminishing returns.

Ricardo evidently transcends the tautologies of Say and attempts to formulate the market theory in such a way that there is more harmony aligned to the fundamental facts underlying the capitalist economy. Malthus, on the other hand, attacks the Ricardian perspective to defend the unproductive consumer. Quintessentially, Ricardo supports the position that the consumer is unproductive and contributes little or nothing to the process of production.

In his defending the consumer, Malthus is evidently supporting the Smithian formulation of value during a period when capitalism was advanced enough to require a more consistent theory than the prevailing one. Malthus appeared to share Smith’s thinking in that he was in favor of a permanent social structure bearing the same attributes as the transition phase of the 18th century.

In his reasoning, he appears to have created a balance between the Whig aristocracy and the industrial middle class although in his time latter inevitably stood to attain a decisive victory.

However, to this end, Malthus was obligated to demonstrate that the capitalist system was never self-equilibrating and this could only be achieved if he showed sufficient criticism to the system. The interest of his contribution is based on the fact that defending pre-capitalist conditions should be combined with both the approval of general capitalism as well as uncovering many of its underlying difficulties.

Malthus opposes Say and by extension Ricardo when he suggests that the former fails to account for the principle of human nature more so as far as indolence is concerned. He contends that humans will always be characterized by high levels of product demand even in the times of general shortages of money.

The high levels of demand are due to preference given to luxurious products. Ricardo, however, counters this by saying that while there may be a point where indolence takes precedence over consumption, the extra commodities will simply fail to be produced and, therefore, there cannot be want of a market for them (Roll 355).

Many of the objections of Malthus on Ricardo’s theory of values essentially have been found to be more personal than academic. This can be explained with the fact that Malthus never came up with a theory that sought to rival Ricardo. Instead, he capitalized on some of the confusion in Adam Smith’s theory and used them to convolute Ricardo’s conclusion on the premises that it supported Say’s theory.

At the end of the day, it can be concluded that in the debate between the two thinkers, Ricardo emerged the victory given that it was primarily conducted on a barter economy terrain.

Keynes in later works admits that from a subjective point of view, Malthus had won but concedes that in light of the arguments presented, awarding victory to Malthus would reflect badly on the intellectual mettle of the audience. He, however, insists that Malthus should be credited with a great deal of insight that Ricardo was never able or willing to recognize as he did not appear to attribute any significance to his opponent’s primary line of thought.

Karl Max attempts to create a distinction between the absolute and relative surplus in as far as value is concerned, he theorized that the surplus can be increased in two major ways. For one, the capitalist can lengthen the working day or reduce the part of this day that is equated to labor while lengthening, which underpins the manufacture of surplus product (Roll 353).

This according to him presents even more complicated problem, given that the surplus value cannot be originated from the process in which commodities are circulated, nevertheless, it is only in that process that they can appear. He undertakes to distinguish the concept of the rate of surplus value that he deems to be a proportion of the capital increment that characterized the process of capital production.

Marx argues that the degree of exploitation of labor in a capitalist environment is representative of the value of the surplus product, ergo the physiocrats albeit in a different guise (Roll 357). Surplus value is expressed primarily in terms of capital, however, the surplus value is measured in relation to the part a given product plays or represents socially as opposed to the total product.

The idea of surplus values was a key in Karl Marx’s critique of the political economy, although he did not come up with the term himself, he was the originator of the concept that was derived from the German word Mehrewert which means value added (Roll 243). In an ideal setting, value addition has an effect on salaries and financial gains of business establishments. On the other hand, Max viewed value addition on the premises of gains made in investments.

Ergo, Marx differentiates the term surplus value from the value added, he argues that the surplus value is the value that workers add on top of their own labor cost, which is designated by the capitalist as profit after the sale of services or goods.

In his opinion, the gigantic rise in wealth as well as size of populace that characterized the 19th century could be attributed to the high rate of competition with the intent of deriving maximum surplus value from one’s employees, which resulted in a significant increase in the productivity of available capital resources. He argues that thriving economies that are characterized by surplus have high chances of promoting capitalism.

Marx summarizes that possible of the objections of the labor theory can be categorized under four heads, labor can be viewed as a commodity, or if the exchange of a product’s value is equivalent to the labor in it, then the exchange value of the labor must be equal to its product. The third consideration is that the market price of commodities is in a constant drop of labor and labor’s time measures exchange value (Roll 209).

The contribution of Marshall on the codification of economic though is undeniable in the face of considerable contemporary and retrospective evidences attesting to it. He was one of the economies that popularized the use of supply and demand as tools through which price of products could be determined. In addition, the linkage between shifts and curve, which modern economist so commonly use, can be traced back to his ingenuity. In numerous ways, he proved himself an indispensable part of the marginalist revolution.

This is based on the idea that consumers will attempt to adjust their levels of consumption until such time when their marginal utility is equal to the price, in addition, he presented the price elasticity of demand as an extension of his other idea (Roll 198). His perception of welfare could be categorized under produce and consumer surplus. In some situations, the two concepts that play a vital role in modern economics are referred to as Marshallian surplus.

Mainly, he based his analysis on the impacts of taxes and price dynamics on the premises of surplus. Therefore, he developed important economic models that are very useful in the contemporary world. In fact, the standard supply and demand curve were initially propounded by him as he attempted to demonstrate a number of fundamental factors that affect the demand and supply through the use of graphs and curves.

The laws of marginal utility and diminishing returns were all products of his mind and it is through his model that the complex elements that interacted in the construction of economic realities were depicted through graphical means allowing for visual representation. Today, these are instrumental in the field of economics since they allow a sober and critical outlook and facilitate the explication of the economic fundamentals.

Marshallian’s concept of consumer surplus is basically aligned to the above view by Marx in several ways, it expresses the surplus satisfaction that customers derive from the ability and opportunity to buy goods at less than the price deems them to be worth. This notion derives from the distinction between total and marginal utility and in a nutshell, it argues that although opponents of the concept have decried the possibility of measurement of implied customer surplus, Marshall did not suggest this either (Roll 398).

This assumption is only used on the highly abstracted notion that marginal utility of money is constant; indeed he has claimed that the concept acts rather as a counterweight to the conventional analysis of customer surplus that has been used in the demonstration of taxes on products with direct or indirect demand.

Using this concept, he attempts to demonstrate to what extent government intervention is desirable and practical. Indeed, the whole field of economics welfare founded by Pigou, one of Marshall’s followers and eventual successor is founded on the assumptions under which the consumer’s surplus is doctrine and acts as an intellectual ancestor.

Works Cited

Roll, Eric. The History of Economic Thought. London, United Kingdom: Faber and Faber, 1974. Print.

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The History of Economic Thought

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