Research Paper
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Final Research Paper
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Paper Format: MLA
Spacing: Single
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Part I Student XYZ
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Economic Thought
1. Ibn Khaldun in his work The Muqaddimah has as a central organizing principle for society. His concept of Asabiyyah, or social cohesion, refers to the social bonds that form as a result of divisions of labor. Explain how this principle is derived from this “division of labor.”
Prolegomena is a book written by North African Muslim historian, Ibn Khaldun in 1377 which records an early view of universal history. Called “Muqaddimah” the book is a sociological treatise wherein it lays down the concept of Asabiyyah or social cohesion derived from divisions of labor. This social cohesion or bonds among humans is developed in a group or community. It explains the concept of helping another person in an unjust cause. The logic of the concept followed from division of labor when every other person in a group followed solidarity for the “mulk” or partisan rule such that it is sustained. Under this division of labor the social solidarity made the “Berbers” invincible, amongst whom he found it profoundly applied. Using this approach he explained both how history found societies disintegrated as well as the increasing division of labor leading to it. Once the social bonds and human social solidarity enhanced the group and their leader to a luxurious position from consequent wins at war for control of resources, the same structure of leaders and followers turned against itself. Instead of following the purpose of winning wars, the leader employed mercenary to fight their war and bureaucracy to take care of various ministries. In this way the labor of the governance was divided in another way for the followers while leaders baked in luxury. He observed that slowly but surely, the generations of leaders and followers “mulk” or territory and power was annulled while the state became ripe for takeover by a new tribe. This was then the concept of the “Asabiyyah” which explains the social solidarity and division of labor that later changed to disruption though the theoretical derivation from this sequence of division of labor clearly stated how this principle is derived. The book elaborates on social laws and social ecology, wherein he emphasized the importance of the division of labor in the production process. In his book, he states the rule which brings forth the principle as well as explains the above treatise, in a clear manner. He explains that as the power with an individual human being is not sufficient to get him food he needs, and assuming an absolute minimum of food, with help from fellow beings called cooperation the requirement of his and his fellow beings is fulfilled. The need could be many times more than what he requires but with the cooperation of fellow beings, the combination of powers from fellow beings, he can make possible for obtaining food for himself and for them. Later the congregation, group or community when amasses more wealth and observes division of labor the same principle of Asabiyyah occurs.
Part II 2. Why was Adam Smith so critical of the MercantalistsMercantilists? Specifically outline the areas of contention. Smith also appeared to have had a particular disdtain for Sir James Stewart who was often regarded as the "last Mercantilist."
- Adam smith was critical of the mercantilist theory of wealth as the theory was self contradictory and logically confusing. Their theory accorded status to amassing wealth by trade surplus was vain. Next they also ascertained precious metals as real wealth of a nation. These and the notion that more precious metals being brought into the country would lead to greater productivity in an economy were the areas of contention. The attack on mercantilists by Adam Smith reiterated that foreign trade allowed and encouraged development. This was from increase in production capability of country and increase of real wealth. But the argument that Adam Smith gave was that a country is wealthy only from greater production capacity and production of consumable goods and services, not from possessing extra gold and silver. The accumulation of only gold and silver would be insignificant. Therefore a larger capacity of production, active in foreign trade as well as exporting more goods to trade partners would only make countries wealthy in the world. Adam smith therefore refuted claims of mercantilists as being nonsensical and untenable.
His remark of self contradiction explains that total wealth of world was constant even though one country gave up on precious metals and the other gained. It was assumed that all the countries had already followed same principles of national economic egoism with desire to earn from trade. The mercantilist theory does not explain what, how and why trade exists. The theory is used to exercise colonial exploitations and flaunts the banner of trade. This theory loses significance as the trade was not explained.
His criticism of the mercantilists did not stop here; he was against the theoretical treatise and works of Sir James Stewart who was himself a mercantilist. In his letter to a good friend Pluteney, dated 5th September 1772, he explains his position and also accepts the fact that he would stand against the theory of mercantilist Sir James Stewart, which is purely fallacious. The opposition to the mercantilist views would meet with a denial and refutation which is clear and easily read.
“. but upon looking them over I find that they are too much interwoven with other parts of the work to be easily separated from it. I have the same opinion of Sir James Stewart's book that you have. Without once mentioning it, I flatter myself that any fallacious principle in it will meet with a clear and distinct confutation in mine.”
Part III Physiocrats 3. What is the significance of Quesnay’s Tableau Economique in the history of economic thought?
1. • How is this Tableau an application of Science?
2. • Does the profession of Francois Quesnay have have any bearing on his view of what constitutes an economy? Explain.
The Tableau Economique is an economic model which was first presented by Francois Quesnay in 1758. Quesnay ascertained that trade and industry were not sources of wealth and that economic agricultural surpluses are real movers of rent, money and wages with purchases in an economy. Quesnay was not anti-industrialist and his thoughts were not entirely revolutionary but lead to a sect called the Physiocrats to evolve. From his ideas in economic thought a number of important contributions like origin of theory of money multiplier and wage-fund doctrine was derived which was later rejected. Also a similar analogous economic table is used in theory of money creation under the fractional-reserve banking by relending of deposits leading to money multiplier. Thus the significance of Quesnay’s Tableau Economique is strong and evident in history of economic thought.
- The Tableau is indeed an application of science. Firstly, it quantified the use of economics for future generations in a concise model. This effort rationalized the history of economic thought from rational and objective positive inquiry. Secondly, recent historians have been able to extend the model to other spectrums leading the affirmation that the model is indeed based on scientific inquiry and accept only when sufficient evidence is available. For example Lois Charles said that the Tableau flows of arrows indicated display of mechanical clocks, Norton wise treated the tableau as equilibrium between attraction and repulsion and Jessica Riskin who ascribed the basis of tableau and Physiocracy on physics. (vardi)
- Francois Quesnay profession of a qualified surgeon is having important bearing on his view in what constitutes an economy. Just like the body has circulation of blood, so does an economy have circulation of money. While his work involved surgical inquiry into internal blockages to fluid circulation in a body, and advised the body to heal itself, quite similarly the laissez faire functioned the same way in an economy by permitting the goods to circulate freely, removing impediments of tolls, duties and taxes to economic circulation. Ultimately, the reason for the Tableau was to find or diagnose how there were blockages or misdirection to economic exchanges. Francois Quesnay developed this idea of Tableau and led physiocrats at a time when France was plagued with economic distress and heavy burden on the State. ( lazarous 1982)
Part IV 4. The full title of Adam Smith's Wealth of Nations contains two questions. What are the two questions? What were Smith's answers to these two questions? Contrast Smith's answers to those of the English mercantilist, Thomas Mun.
The book wealth of nations contains two important questions which are the determination of relative prices in an economy and the question of best measure of welfare. In his answer to how the economy determines the relative prices, he distinguishes two time periods the short run and long run with two broad sectors of an economy, agriculture and manufacturing. During short run period Smith has found downward sloping demand curves and upward sloping supply curves in both market sectors and then the market prices depend on demand and supply. The long run time period natural price is having some contradictions. For agricultural sector this natural price is determined by supply and demand as long run supply curve is upward sloping while for manufacturing this supply curve is at times assumed perfectly elastic or horizontal and other parts downward sloping indicating decreasing costs. In manufacturing when supply curve is elastic then price depends on cost of production while when downward sloping natural price determined by both demand and supply.
Smith prepared three different theories of relative prices as he was confused on the question. (1) a labor cost theory of value, (2) a labor command theory of value, and (3) a cost of production theory of value. According to labor cost theory the exchange value or price is determined on labor required to produce it. Smith also realized it is difficult to ascertain work by simply putting together hours and needed skills and disagreeableness of task. Capital and land are free goods in this economy. For an advanced type of society we come to fact that capital is accumulated and land is appropriated. Final prices yield the result as factor payments of wages, profit and rents. In the cost of production theory of value he determined that all factor payments accrue to all factor inputs land and capital in addition to labor. In this he assumed that that average costs change with output, prices determined by both demand and supply. With enough competition he ascertained that the self interest of the businessman, laborer, and landlord would consequentially result in natural prices that equal cost of production.
In answer to the questions of Adam Smith’s wealth of nations, Thomas mun a mercantilist had given some answers on his own. He had insisted of foreign trade being governed by demand and that flow of goods rules exchange rates. Silver is merely another commodity. His advise had been to maintain low export prices, efficient commercial procedures, full exploitation of native endowments, low export duties and re exports. A most notable exception had been the recognition of and insisting principle of demand elasticity estimating reduction in price of cloth by 25% would increase quantity sold by 50%. Thus in contrast Mun answers were specifically mercantilist while Adam smith objective evaluation of market prices, value, dynamics of market clearing or natural prices, international trade has been more effective lending scientific inquiry and a complete exposition.
Part V Malthus 5. How does Malthus base his theory of growth and market HYPERLINK "https://admin.wizardwriters.com/my_orders?subcom=detailed&id=209917130" \o "Click to Continue > by Cinema-Plus-1.5"MARKET dynamics on his theory of population? Why, after Malthus, does economics now become a “Dismal Science?”
Part VI Malthus propounded a theory of population growth by which he was able to explain the problems of growth and also market dynamics. He stated in his theory that population growth could overtake resource growth in an economy leading to damages. This is because population grew exponentially while food supply grew arithmetically. Without effective population control, there are catastrophes like famine and wars. Population grows at a geometric rate 1,2,4,32,64 etc while food production increases at a constant arithmetic rate 1,2,3,4 etc. He provided the details on his model in 1798 in book “Essays on the Principle of Population”. When the overpopulation happens the economy has overlapped with the “carrying capacity” of the economy for the resources assimilation and utilization given the endowments. Later as the economy faces burdens from overpopulation there is moral right to curb population growth as well as decrease in overall output from the economy.Ricardo 6. In the population model he explains further that the production function has a fixed factor of production whose supply is unchanged over a period of time. Labor and capital can be increased overtime. This fixed factor is land. With the additional element that population growth function is an increasing function of per capita consumption, the steady state in an economy is characterized by the constant living standard even when there is technological change.
Malthus theory of population was gaining wide influence. The theory for protecting an economy from Malthusian crises or catastrophe was becoming evident and gained popularity. The theory itself lessened social reforms, a logical explanation of poverty while also exposing the underlying futile social conditions and prompted debates. The theory instilled disappointment still widely prevails today but was called dismal science as it proved all efforts of government in curbing the overpopulation and consequent crises in economy proved futile. Another reason why it is dismal science is the crisis of confidence in public policy as a defining characteristic as well as neglect and no cure of the ailment. The term “dismal science” was a reaction of Carlyle to the theory of population as defined by Malthus.
Ricardo really doesn’t like landlords, in spite of being a landlord himself! himself! Why is this? What is it about the Landlord Class that Ricardo finds so disagreeable? (Have a frank discussion about “Capital Formation.”)
In Ricardo’s writing on economic formation and capital interests, the interests of landowners directly become opposite to that of general society. Ricardo did not like landlords as the class relations were engendered by the landowners to usurp whatever profit came off production in the land. This appropriations of profits and adversarial class relations is evident in his writings of when he spoke against the colonial subjugation of territories for capital, as also determining class conflict as something being brought out by landlords themselves. Ricardo relented to the fact that there would eventually be a big forecast of economic stagnation which would inevitably lead to the working class uprising in revolt or a massive failure in state’s ability to stop working class people from demanding rights and fair valuation. His views on capital formation were slightly different from Adam Smith. His idea of capital formation comes to naught with the developments in an economy for capital formation being resulting and cause of misery due to landlord interests.
The profit for society is dependent upon estimate of labor necessary to support workers. Under his model the land is broken down into categories based on average fertility rates. Most fertile land should command a higher rent, and poorest land utilized for agriculture should receive no rent with all earnings thereby covering only costs of labor and capital. If the system of current output production and formation of product were ascertainable then the least fertile land and best quality land output must be differed to get the source of rent on the better quality land. With the passage of time one cannot deny the existence of the revealed need for greater production to support demands on food, materials and goods. In fact the pressure on poor land to cultivate best production or output is intense. This ultimately increases the cost of rent on the good quality land as well. As a consequence to these and many other growing output demands, the profit gets minimal or fall in profits is observed. Since the main route to capital formation is profit and since growth observes rising rent costs, both the aspects are weaker to strengthen the development of capital formation, Ricardo assumed an indirect prevention to the economic progress in a country or nation state.
The main tenet is that the growing population decreases the profits as the economic development increases and progress happens. So capitalism has many underpinnings which have misery expected to lead to social strife and revolution. Therefore one cannot assume that a revolutionary political economy theory cannot exist and the similarity to Marx ideology is observed. Also the resultant divide of past success and maintaining future generations is somewhat different when the other theoretical aspects of market clearing or Adam Smith’s natural price are considered.
3 page (double-spaced) essayValue TheoryTThe best single defining feature of Classical Economics is the centrality of the Labor Theory of Value as a gravitational base for the determination of HYPERLINK "https://admin.wizardwriters.com/my_orders?subcom=detailed&id=209917130" \o "Click to Continue > by Cinema-Plus-1.5" MARKETp market prices.
1) Explain Adam Smith’s theory of value (give examples from the Wealth of Nations).
2) Explain Ricardo’s theory of value (give examples from the Treatise). Stigler (1958) called Ricardo’s theory of value a “93% labor theory of value,” what is meant by an invariable measure of value? Why does Ricardo need it?
3) On what grounds does Ricardo criticize Smith’s theory of value?
- Adam smith theory of value is a succinct answer to the work principle, wherein he states that the value of a finished good correlates solely with the number of labor hours required in producing it. ( “Adam Smith and the Theory Of Value” henry) This theory was conceived at the time of the industrial revolution, and Karl Marx had used it to define misappropriation of labor wages and factor payments. The theory is important as the developments are ineffective from failing to account for most material costs, worker’s skill levels, capital usage as well as depreciation costs. It also ignores the variance of consumer demand for variety of goods and commodities. As Adam smith put it,” work is the only universal, as well as the only accurate measure of value”. Again some of the preconditions of the work done are that value of goods is determined by the labor expended on it and that cost is labor materialized in the commodity. The second condition for the operation of the theory is cost (and price) is made up of cost of production of goods, from labor costs, profit and rent for land. The two conditions indicate primitive society and realistic situation in modern capitalist world.
- According to Ricardo, the appropriate theory is labor embodied theory of value, the argument that relative natural prices are determined by relative hours of labor expended in their production. ( “David Ricardo: Critical Assessments” wood) Thus Ricardo went on further to determine that the labor theory of value would work only if the degree of capital intensity was same across all sectors creating a doubt on the generality of cherished theory. (Ricardo 1887) Stigler called Ricardo theory of value as a 93% labor theory of value. This is related to empirical argument which states that firms would apply capital in a roughly proportional manner to amount of labor invested. This way the resulting prices when profits are equalized would not differ much from values implied by labor theory of value. Also as the own dilemma that Ricardo is facing is solved from precondition of finding a standard commodity is a second solution as the theory needs it. This commodity with average capital per worker is such that price reflects labor embodied value and cannot vary with changes in distribution. This is what he called the ‘invariable standard of value’.
- Ricardo criticizes the Smith theory of value from the question of capital coming into the economy, the problem of different industries applying different amounts of capital per laborer evidently made profit to differ among industries. If it is assumed that rates of profits are equalized or free competition is implied than relative prices would now vary only with the wages. Thus he started with the criticism of Adam Smith alternatives of the labor commanded and adding up theories of value since this made value a function of wages and income distribution. This was according to Ricardo the main flaw in the Smith argument leading to its untenability. ( Hollander 1904) Thus value must be independent of distribution and only labor embodied theory of value made practical sense.
Bibliography
Houmanidis, Lazaros. “Francois Quesnay, The founder of economic science” (1982) : Print.
Vardi, Liana. “The Physiocrats and the World of the Enlightenment”. Cambridge University
Press: Print.
Hollander, Jacob H. “The development of Ricardo’s theory of value” Quarterly Journal of
Economics, 18 (1904): 455-491: Print
Wood, John Cunningham. David Ricardo: Critical Assessments. Volume 2: Print
“Letters of David Ricardo to T R Malthus” Claredon Press. (1887) : Print
Henry, John F. “Adam Smith and the Theory Of Value” History of Economics Review: Print
Dixon, Robert. “The Origin of the Term "Dismal Science" to Describe Economics” Australia: Print.
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