Assignment in Economics
Content
Alvarado, Stephanie Camille O.
BSIT 3y2-1
Assignment in Economics
Adam Smith's Contributions to Economics (1723-1790)
Before the industrial revolution, world market products were so wide-open for English
manufacturing goods that English merchants no longer needed domestic market demand to sell
their finished goods. Traditional markets all over the world were considered as non-capitalist
markets, and most profit seeking English merchants strived to eliminate these non-capitalist
markets' structures. Traditional markets in most countries could not compete with the English.
The English had huge manufacturing advantages in comparison to non-capitalist countries,
especially in the area of technological innovation. Most of England's superiorities were founded
in textile and iron industries. This growing industrial prowess and capture of new markets
quickly led to new sources of profits and increased potentials for capital accumulation. After the
invention of steam engines, whole English lands were dedicated to the production of
manufacturing products. Soon, factories were built closer to markets located in the cities rather
than near rivers that were easily accessible to transportation or near mines for easy access to raw
materials. Furthermore, upon discovering that specialization and division of labor stimulate
productivity,. Manufacturers increasingly encouraged mechanizations and assembly line
production in their factories. As a result, manufacturing productivity also continued to increase.
Malthus was interested in everything aboutPOPULATIONs. He accumulated figures on births,
deaths, age of marriage and childbearing, and economic factors contributing to longevity. His
main contribution was to highlight the relationship between food supply and population. Humans
do not overpopulate to the point of starvation, he contended, only because people change their
behavior in the face of economic incentives.
David Ricardo maintained that the economy generally moves towards a standstill. His analysis
is rooted in a modified version of the labor theory of value. He held out the belief that the rate of
profit for society as a whole depends on the amount of labor necessary to support the workers
who farm "the most barren land that can still maintain agriculture" This model breaks land down
into categories based on average fertility rates. The most fertile land naturally produces more
food than land of poorer quality. As a result it commands a higher rent. The poorest land utilized
for agriculture receives no rent, with all of its earnings going to cover labor and capital costs. The
difference between the output from the least fertile land which can still be farmed and that of a
higher quality constitutes the source of rent on the better land. As the population grows, poorer
land must be cultivated in order to meet the growing demand. The cost of rent for good land then
increases. This, coupled with the fact that poor land necessitates increased labor input to
maintain minimal output results in falling profit levels. As rents rise, profits fall. Essentially, rent
costs gobble up profits as the population increases. Since profits lead to reinvestment and thus
growth rising rent costs indirectly prevent economic progress.
Karl Marx, a German economist and political scientist who lived from 1818 to 1883, looked at
capitalism from a more pessimistic and revolutionary viewpoint. Where Adam Smith saw
harmony and growth, Marx saw instability, struggle, and decline. Marx believed that once the
capitalist (the guy with the money and the organizational skills to build a factory) has set up the
means of production, all value is created by the labor involved in producing whatever is being
produced. In Marx's view, presented in his 1867 tome Das Kapital (Capital), a capitalist's profits
come from exploiting labor—that is, from underpaying workers for the value that they are
actually creating. For this reason, Marx couldn't abide the notion of a profit-oriented
organization.
This situation of management exploiting labor underlies the class struggle that Marx saw at the
heart of capitalism, and he predicted that that struggle would ultimately destroy capitalism. To
Marx, class struggle is not only inherent in the system—because of the tension between
capitalists and workers—but also intensifies over time. The struggle intensifies as businesses
eventually become larger and larger, due to the inherent efficiency of large outfits and their
ability to withstand the cyclical crises that plague the system. Ultimately, in Marx's view, society
moves to a two-class system of a few wealthy capitalists and a mass of underpaid,
underprivileged workers.
Thorstein Veblen | Economics (1857-1929)
As unconventional in his personal life as in his academic career, Thorstein Veblen always seemed
to stand outside of his social and intellectual environment. In 1906, after fourteen years at the
University of Chicago, some of which he had spent as a research fellow and instructor, he had
risen only to the rank of assistant professor. Yet it was during these same years that he made
many of the probing observations of American life which have brought him enduring attention.
Veblen was one of the first academics to examine seriously the relationship between
consumption and wealth in society. Although he trained and worked as an economist, he
incorporated sociological and anthropological research into his own work. His classic work, The
Theory of the Leisure Class (1899), written at Chicago, dissected the behavior of the wealthy in
an increasingly materialistic world, coining the phrases conspicuous consumption, pecuniary
emulation, and conspicuous waste. The book's effectiveness was enhanced by Veblen's seemingly
dispassionate and impersonal style. In fact it was a savage and frequently ironic if extremely
erudite assault on current values. John Kenneth Galbraith has called it one of only two books by
nineteenth-century economists that is still read
John Maynard Keynes.
So influential was John Maynard Keynes in the middle third of the twentieth century that an
entire school of modern thought bears his name. Many of his ideas were revolutionary; almost all
were controversial. KEYNESIAN ECONOMICS serves as a sort of yardstick that can define
virtually all economists who came after him.
Keynes was born in Cambridge and attended King’s College, Cambridge, where he earned his
degree in mathematics in 1905. He remained there for another year to study underALFRED
MARSHALL and ARTHUR PIGOU, whose scholarship on the quantity theory of money led to
Keynes’s Tract on Monetary Reform many years later. After leaving Cambridge, Keynes took a
position with the civil service in Britain. While there, he collected the material for his first book
in economics,Indian Currency and Finance, in which he described the workings of India’s
monetary system. He returned to Cambridge in 1908 as a lecturer, then took a leave of absence to
work for the British Treasury. He worked his way up quickly through the bureaucracy and by
1919 was the Treasury’s principal representative at the peace conference at Versailles. He
resigned because he thought the Treaty of Versailles was overly burdensome for the Germans.
BSIT 3y2-1
Assignment in Economics
Adam Smith's Contributions to Economics (1723-1790)
Before the industrial revolution, world market products were so wide-open for English
manufacturing goods that English merchants no longer needed domestic market demand to sell
their finished goods. Traditional markets all over the world were considered as non-capitalist
markets, and most profit seeking English merchants strived to eliminate these non-capitalist
markets' structures. Traditional markets in most countries could not compete with the English.
The English had huge manufacturing advantages in comparison to non-capitalist countries,
especially in the area of technological innovation. Most of England's superiorities were founded
in textile and iron industries. This growing industrial prowess and capture of new markets
quickly led to new sources of profits and increased potentials for capital accumulation. After the
invention of steam engines, whole English lands were dedicated to the production of
manufacturing products. Soon, factories were built closer to markets located in the cities rather
than near rivers that were easily accessible to transportation or near mines for easy access to raw
materials. Furthermore, upon discovering that specialization and division of labor stimulate
productivity,. Manufacturers increasingly encouraged mechanizations and assembly line
production in their factories. As a result, manufacturing productivity also continued to increase.
Malthus was interested in everything aboutPOPULATIONs. He accumulated figures on births,
deaths, age of marriage and childbearing, and economic factors contributing to longevity. His
main contribution was to highlight the relationship between food supply and population. Humans
do not overpopulate to the point of starvation, he contended, only because people change their
behavior in the face of economic incentives.
David Ricardo maintained that the economy generally moves towards a standstill. His analysis
is rooted in a modified version of the labor theory of value. He held out the belief that the rate of
profit for society as a whole depends on the amount of labor necessary to support the workers
who farm "the most barren land that can still maintain agriculture" This model breaks land down
into categories based on average fertility rates. The most fertile land naturally produces more
food than land of poorer quality. As a result it commands a higher rent. The poorest land utilized
for agriculture receives no rent, with all of its earnings going to cover labor and capital costs. The
difference between the output from the least fertile land which can still be farmed and that of a
higher quality constitutes the source of rent on the better land. As the population grows, poorer
land must be cultivated in order to meet the growing demand. The cost of rent for good land then
increases. This, coupled with the fact that poor land necessitates increased labor input to
maintain minimal output results in falling profit levels. As rents rise, profits fall. Essentially, rent
costs gobble up profits as the population increases. Since profits lead to reinvestment and thus
growth rising rent costs indirectly prevent economic progress.
Karl Marx, a German economist and political scientist who lived from 1818 to 1883, looked at
capitalism from a more pessimistic and revolutionary viewpoint. Where Adam Smith saw
harmony and growth, Marx saw instability, struggle, and decline. Marx believed that once the
capitalist (the guy with the money and the organizational skills to build a factory) has set up the
means of production, all value is created by the labor involved in producing whatever is being
produced. In Marx's view, presented in his 1867 tome Das Kapital (Capital), a capitalist's profits
come from exploiting labor—that is, from underpaying workers for the value that they are
actually creating. For this reason, Marx couldn't abide the notion of a profit-oriented
organization.
This situation of management exploiting labor underlies the class struggle that Marx saw at the
heart of capitalism, and he predicted that that struggle would ultimately destroy capitalism. To
Marx, class struggle is not only inherent in the system—because of the tension between
capitalists and workers—but also intensifies over time. The struggle intensifies as businesses
eventually become larger and larger, due to the inherent efficiency of large outfits and their
ability to withstand the cyclical crises that plague the system. Ultimately, in Marx's view, society
moves to a two-class system of a few wealthy capitalists and a mass of underpaid,
underprivileged workers.
Thorstein Veblen | Economics (1857-1929)
As unconventional in his personal life as in his academic career, Thorstein Veblen always seemed
to stand outside of his social and intellectual environment. In 1906, after fourteen years at the
University of Chicago, some of which he had spent as a research fellow and instructor, he had
risen only to the rank of assistant professor. Yet it was during these same years that he made
many of the probing observations of American life which have brought him enduring attention.
Veblen was one of the first academics to examine seriously the relationship between
consumption and wealth in society. Although he trained and worked as an economist, he
incorporated sociological and anthropological research into his own work. His classic work, The
Theory of the Leisure Class (1899), written at Chicago, dissected the behavior of the wealthy in
an increasingly materialistic world, coining the phrases conspicuous consumption, pecuniary
emulation, and conspicuous waste. The book's effectiveness was enhanced by Veblen's seemingly
dispassionate and impersonal style. In fact it was a savage and frequently ironic if extremely
erudite assault on current values. John Kenneth Galbraith has called it one of only two books by
nineteenth-century economists that is still read
John Maynard Keynes.
So influential was John Maynard Keynes in the middle third of the twentieth century that an
entire school of modern thought bears his name. Many of his ideas were revolutionary; almost all
were controversial. KEYNESIAN ECONOMICS serves as a sort of yardstick that can define
virtually all economists who came after him.
Keynes was born in Cambridge and attended King’s College, Cambridge, where he earned his
degree in mathematics in 1905. He remained there for another year to study underALFRED
MARSHALL and ARTHUR PIGOU, whose scholarship on the quantity theory of money led to
Keynes’s Tract on Monetary Reform many years later. After leaving Cambridge, Keynes took a
position with the civil service in Britain. While there, he collected the material for his first book
in economics,Indian Currency and Finance, in which he described the workings of India’s
monetary system. He returned to Cambridge in 1908 as a lecturer, then took a leave of absence to
work for the British Treasury. He worked his way up quickly through the bureaucracy and by
1919 was the Treasury’s principal representative at the peace conference at Versailles. He
resigned because he thought the Treaty of Versailles was overly burdensome for the Germans.
