Consider any two of the four theorists taught this term: Adam Smith, David Ricardo, Karl Marx, Alfred Marshall. What are the key similarities and differences between them? Which elements of their theories do you find useful or important and why? PDF

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Consider any two of the four theorists taught this term: Adam Smith, David Ricardo, Karl Marx, Alfred Marshall.
What are the key similarities and differences between them?
Which elements of their theories do you find useful or important and why?
...

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Essay Question: Consider any two of the four theorists taught this term: Adam Smith, David Ricardo, Karl Marx, Alfred Marshall. What are the key similarities and differences between them? Which elements of their theories do you find useful or important and why?

Course: BSc Marketing Student ID: 3363835901 Module: Foundations of Economics Word Count: 1,979 Date Due: 13th December 2019

David Ricardo and Karl Marx are both extremely well-known economists. This is because they both drastically contributed to the study of economics and how we view the economy. In this essay, I will discuss the theories and viewpoints of Karl Marx and David Ricardo, then I will discuss the similarities and differences that are found between these two economists and which elements of their theories have been useful or important in the long run. Karl Marx was an extremely passionate and dedicated communist, he even wrote The Communist Manifesto alongside long-term friend Friedrich Engels. He believes that “capitalism contained the seeds of its own destruction.” Marx was born in Trier, Prussia (now Germany) and lived in London for the last half of his life, in which there was a fair degree of poverty. Karl Marx believed that capitalists (owners of capital) would gain more capital over time, meaning that wealth would become highly concentrated in the hands of a few individuals, rather than the whole population. Marx was certain that capitalism would, eventually, destroy itself one day. Marx even went on to writing a book alongside Friedrich Engels, a long time friend, in which it states that there will be an impending revolution in which the workers, or proletarians as Marx states, of the world will unite. One of Karl Marx’s key ideas, or theories, are that economic systems follow each other.

For example, he implements his historical materialist method in order to

describe the drawn out changes in any given society. Every means of production has its own conflicts, which, eventually, will lead to its redundancy.1 Another means of production will take place after that and so on. Marx was keenly interested in investigated the conflicts of capitalist societies. Another idea of Marx’s is that capital accumulation comes from a surplus value. Each type of production is distinguished 1 St i l we l l , F. ( 2 012 ) . Pol i t i c ale c o nomy . So ut hMe l bo ur ne :Ox f or dUn i v e r s i t yPr e s s ,pp .9 8140 .

by the difference segments that regulate production and distribution. For instance, in capitalism, production is determined by the capitalists, those who control the means of production. A portion of the production is used in order to employ the workers and machines, the rest is a surplus (i.e. extra money left over after paying all one’s business expenses), which can be shared between the other classes (e.g. profits and rents). A final idea of Marx’s is that capitalism is in fact unstable and it is prone to crisis. Every sort of production shows its own contradictions and consistency. The role of a political economist is to identify those in its basic attributes. Capitalism is therefore no different and will be replaced, in due course. David Ricardo was one of the most influential classical economists among many others, such as Thomas Malthus, Adam Smith, and more. The main issue Ricardo was concerned with was to determine the laws regulating the distribution of output between the various classes in society.2 He focused on distribution in order to discover the drivers of economic growth. Ricardo’s methodology was focused more on class structure and production rather than individuals and exchange; he placed a large amount of importance onto social classes. According to Ricardo, he would divide his society into three separate classes; the working class, the capitalist class, and the landowner class. The working class is comprised of the labourers that work (e.g. in factories) and receive wages. The capitalist class rent land or build factories; they make money by manufacturing industrial goods. The landowner class are the aristocrats of society who receive funds out of the land titles they hold (i.e. rent). The landowner class usually gets rent from capitalists renting their land or farmers renting their land. Another one of Ricardo’s ideas was that different distributions of income have a strong impact on the growth of the economy of a society. For instance, 2 Ri c a r do ,D.( 2 019 ) . Ont hePr i nc i pl e so fPo l i t i c alEc on omya ndTa x at i on-Ec on l i b.[ onl i n e ]Ec onl i b . Av a i l a bl ea t :ht t ps : / / www. e c o nl i b. or g/ l i b r a r y / Ri c a r d o/ r i c P . ht ml[ Ac c e s s e d11De c . 201 9] .

capitalists are in control of the growth of a country, through investing their profits. Although, to give an example, the capitalists have to pay higher rent fees to landowners, their profits will decrease, therefore, growth will in fact slow down. Marx also divided his society into classes. Although, Marx divided society into two classes instead of three; the workers and the capitalists. Both David Ricardo and Karl Marx wanted to help those stuck in extreme poverty to get more money to support themselves. Both economists believed that it was not just, if worker produce more than what is needed to cover the capitalists’ payments, therefore, granting them a surplus. Although they agreed on what was wrong in their society, they both came up with different solutions in order to fix these issues cause by capitalism. For instance, Marx believed that exploitation caused by the capitalist system would eventually push the working class to rebel and fight for themselves. He was also a strong supporter for socialism. This viewpoint is extremely political and revolutionary in nature. On the other hand, David Ricardo’s viewpoint is more practical. He believed that the taxes demanded from the government were too high, and that the money went straight into the wealthy’s pocket. The labourers did all of the hard work and took all of the risks, although they were not compensated accordingly and had a portion of their money taken away by the government. Therefore, he proposed the idea of free trade and comparative advantage. Free trade is a trade policy that essentially means that you can buy goods and services from another country without impositions of tariffs, quotas, subsidies, and government prohibitions. “A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them.” 3 Comparative advantage represents a country’s or an economy’s ability to produce a good and, or 3 Bar o ne ,A.( 20 19 ) .Ho w a Fr e e Tr a de Ag r e e me n t( FTA)Wo r k s .[ on l i n e ]I nv e s t o pe d i a .Av a i l a bl ea t : ht t ps : / / www. i n ve s t op e di a . c om/ t e r ms / f / f r e e t r a de . a s p[ Ac c e s s e d1De c .20 19] .

service at a lower cost than trade partners. Ricardo stated that it would be more efficient and cheaper to have a free market with comparative advantage. Karl Marx’s method was called Marx’s Historical Materialism. Historical materialism declares that the “material conditions of the mode of production determines its. Organisation and more importantly, its development” 4 (i.e. how are the goods that are made influence society and how it changes over time). Historical materialism is very important in a Marxist notion of the political world. The historical relationships between the working class and the capitalist class and the political structures that sustain the relationships that are established on, reflect the economic activities in any given society. According to Karl Marx, the historical development of a society can be apprehended through the idea of class conflict. In the capitalist system, the owners of the modes of production are allowed to exploit those labourers who work on the production. Marx’s method looks at the interconnection between the economic, social and political processes of a society. Whereas, on the other hand, David Ricardo’s methodology included analytical arguments and simplifying assumptions. A simplifying assumption is a “way of making a model simpler without affecting any of its important conclusions.” 5 Ricardo focused more on the class structure of a society and production of goods and, or services, opposed to individuals and exchange. There is a school of thought, called Neo-Ricardians, that follow this method until recently. Their focus was high on abstract theory and they try to develop general laws that show the tendencies of the capitalist system. Ricardo also believed in free trade and comparative advantage.

4 t ut or 2u. ( 20 19) .Hi s t or i c al Mat e r i al i s m ( So c i al i s m) | Pol i t i c s |t ut o r 2u. [ on l i n e ] Ava i l a bl ea t : ht t ps : / / www. t u t or 2 u. ne t / po l i t i c s / r e f e r e n c e / h i s t o r i c a l ma t e r i a l i s ms oc i a l i s m[ Ac c e s s e d1 3De c . 201 9] . 5 Cengage. c o m.( 2 019 ) . Wh ati sEc on omi c s ?[ o nl i ne ]Ava i l a b l ea t :h t t ps : / / www. c e ng a g e . c om/ r e s o ur c e _up l oa d s / do wn l o a ds / 0 324 421 47 8_1 45 736 . p df[ Ac c e s s e d10De c . 20 19] .

Comparative advantage argues that if a country has any sort of absolute advantage in the production of a. good over another country, it is advantageous for this country to trade with another country that does not have any absolute advantage in the production of making any of the goods. However, Marx has an inconclusive view on the classical economists’ methodology. For instance, he considers that the analytical method of the classical economists is effectively a-historical, although, he does share segments of their structure of analysis. Karl Marx criticised the classical writers and their view on the law of population; “...every specific historic mode of production has its own special laws of population, historically valid within its limits alone. An abstract law of population exists for plants and animals only, and only in so far as man has not interfered with them.” (Marx, Capital, vol. I, 692-3). For Marx, he insists that human and social characteristics are set in specific historical periods, and he concentrated on the specific laws that ruled these historical periods and the periods that followed. Marx’s view on the state is that is exceedingly poor; “[it] consists ultimately of armed bodies of men, that it is an instrument of the ruling class for the oppression of other classes.”6 Marxists do not view the state as an impartial figure watching over society; they usually take the view that the state serves the wants of the capitalist class.7 Similarly, David Ricardo was strongly against the state, perhaps the most anti-government of all of the classical economists (including, Adam Smith, Thomas Robert Malthus, etc.). He was strongly opposed to the taxation of the working class. Ricardo believed that if the “consumption of the government, when increased by the levy of additional taxes, [would] be met either by an increased production, or by a 6 Woods ,A.( 200 8) .Ma r x i s m an dt h eS t a t e .[ onl i ne ]Ma r x i s t . c o m.Av a i l a b l ea t :ht t p s : / / www. ma r x i s t . c o m / ma r xi s ma n dt h e s t a t e p a r t one . ht m[ Ac c e s s e d5De c . 20 19] . 7 St i l we l l , F.( 20 12 ) .Po l i t i c a le c on omy .Sou t hMe l bou r n e :Oxf or dUni v e r s i t yPr e s s , pp .98 1 40.

diminished consumption on the part of the people, the taxes will fall upon revenue, and the national capital will remain unimpaired.” 8 The peoples resources and the state would eventually fall away with an increasing rapidity, and suffering and ruin will soon follow. I agree with David Ricardo’s perspective on free trade and comparative advantage, because it makes more sense to eliminate invisible barriers so that the working class can earn more money than before in capitalistic systems. Also, on the other hand, I agree with Karl Marx’s statements on how capitalism is not impartial, it clearly favours the capitalists, giving them the ability to climb the social ladder, whilst leaving the working class out in the cold. Nonetheless, I do not believe that we need to have a revolution, which is what some Marxists may believe, although, I do believe that capitalism is outdated and the system needs to be re-visited and altered, in order for the system to fit our modern day lives.

Bibliography 8 B. ,N.( 201 9) .Ther ol eo ft hes t at ei nc r e at i n ge c ono mi cv al ue .[ on l i n e ]TheEc o no mi s t .Av a i l a bl ea t : ht t ps : / / www. e c ono mi s t . c om/ o pe n f ut u r e / 2 019 / 05/ 0 9/ t he r o l e o f t he s t a t e i n c r e a t i ng e c on omi c v a l ue[ Ac c e s s e d 13De c .2 019 ] .

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