Economics

Adam Smith

Economics claims to a be a science, the way in which we look at things is subjective rather than objective. Adam Smith was the first economist, he wrote the first influential economic book 'The wealth of Nations' which answered why one country was wealthier then another. Smith thinks that wealthy countries are categorised by free people and free trade. Before hand, he wrote a book on moral philosophy similar to Kant with the view that people are only out for number one. He describes us as 'calculating' machines that are constantly totalling up what will provide us with the maximum pleasure; relating back to Bentham's Utilitarianism  view which was to maximise happiness in the absence of pain. Smith said that if we try to help others in life then this is damaging  and it only gives us more pain, we should allow people to be free and the hidden hand of the market will sort it out.

* Utilitarian outlook would be to achieve the greatest amount of happiness for the greatest number of people. For example, a train of 100 passengers is approaching full speed, an innocent man is working on the tracks, you are faced with two options, pull a leaver and the train obscures off the tracks injury 100 people, or continue on and save 100 people but you've killed the innocent man. The utilitarian person would save the 100 people and kill the innocent man because it has achieved the greatest amount of happiness for the greatest number of people.

David Ricardo 

David Ricardo was an economist who put forward a theory of Value. He believes the value of an object depends on the labour it requires to obtain it. The length of time the labour lasts equates to the value of the commodity. He thinks that there is a spirit of value in things and that the world of contingent objects has no value until human labour is implied. For example, A tree in a forest has no value until a man has come along and chopped it down to use the wood to make matchsticks, the labour required to do this action has given it value. However, a diamond would have greater value because the labour required in mining and the machinery needed to do so takes up more time and labour, in comparison to using an axe to chop down a tree. The more labour intense, the more value.

Thomas Mathus 

Thomas Malthus believed that humans would always starve to death, he stated that the natural condition of men is to be on the brink of starvation and continue the battling struggle to survive. He outlined this in his famous work 'An essay on the principle of population'. If the food system broke down then humans would starve to death within days, which will lead to extinction. Malthus had a theory whereby marriage was the only way to ensure we didn't starve, and specifically that we wouldn't have sex before marriage. A man should not marry unless he had a farm and therefore could support his family. (the farmers wants a wife)  Malthus believed that marriage was linked to economic growth because the passion between the sexes meant that early marriage with no contraception would lead to an extreme rise in population and he claimed that this rise would lead us to face war, famine and other kinds of diseases. 

Karl Marx 

Karl Marx is a political philosopher, who we have touched upon before. click here for my seminar paper on Marxism in case you missed it previously. Marx believed that the capitalist society in which he lived in reached a state of crisis, the opposing class struggles between the bourgeoisies and the proletariats would become stronger and lead to a revolutionary change. First of all socialism, whereby all property would be passed to the state and secondly communism whereby the state would wither away. He based these conclusions on the analysis of the nature of economic value. The value of a commodity is the rate at which it can be exchanged for other commodities, plus the the labour it has required. Marx's view was a combination of Ricardo's Value theory and Malthus' Iron Law of Wages. 

The Iron Law of Wages is the theory that real wages depend on the minimum wage necessary to sustain the life of a worker. For example a widget costs £10 to manufacture, the worker gets £5 wages and the owner gets £5 profit. When the worker goes to the shop to purchase a widget that is priced at £10 they cannot afford it because they only have £5. The shop owner then lowers the prices of widgets meaning that the workers wages must be lowered to maintain a profit. When the value of a widget is lowered to £5 the workers wages will be lowered to £2.50 to maintain a profit for the owner. The value of a product will depend upon the productivity prevailing at the time. This demonstrates the iron law of wages. However, the problem with the iron law of wages is that you have to find more people who are willing to work for less money.

Dates

• In 1844, The Bank of England began to print money, before this time there was no centralised currency. 
• The year of 1848 was the year of the French Revolution, all the factory works were made redundant.
• In 1849 gold was discovered in California, this was known as the Gold Rush.  it allowed expansion in the economy for example investments and borrowing off banks. Depending on how much gold a country had was how rich it was. 

John Maynard Keynes

The great depression in the 1930's was solved by World War II which brought about employment; men went into the army and woman worked in factories. Keynes solved Marx' problem of wages simply by printing money. Keynes believed that the government had to be ready to invest, and borrow more in order to kick-start growth. 

Keynes focused on the question, how can we create more employment? If we devalue the currency and print more money then unemployed resources can come back in to play, and companies and consumers will have more money in their pockets. As a result people can be employed. However, Keynes did not think of the problems of inflation.

Keynes most famous work The General Theory outlined the central argument that the level of employment was determined by the spending of money. His work concluded 4 points:
1. Economies suffer from overall lack of demand, leading to involuntary unemployment.
2. The economy’s automatic tendency to correct shortfalls in demand operates slowly and painfully.
3. Government polices to increase demand can reduce unemployment quickly.
4. Sometimes increasing the money supply won’t be enough to persuade the private sector to spend more, therefore government spending must step into the breach.

The classic theory of employment is that people get paid for what they make, and people only work if their salary is worth it. It was assumed that unemployment was caused either by people not knowing where to find a job or if people demanded more money. The only solution would be to find people who were willing to work for less.