Economic Theories of Karl Marx and David Ricardo
History of economics
Please write a 6 page paper addressing the topic below (minimum of 5 full pages, excluding references). Papers can be double-spaced and should have standard 1” margins. When writin your papers, you can refer to materials from the class and the assigned readings. In addition, your paper should:
• Refer to readings from the Little History of Economics (a minimum of 2 different chapters).
• Incorporate a minimum of 2 additional references, beyond the class materials and readings.
You must cite the sources when you take material from another source. If you quote directly from another source, use quotation marks in addition to citing the source in the text (footnotes, endnotes, or other in-text citations are fine). Failure to cite sources could be a violation of the academic honesty policy (see the course syllabus).
Question
Economists and economic thinkers often disagree and have very different perspectives on how we should understand the economy. One source of these disagreements is linked to the fact that different schools of thought exist within economics (and the history of economic thinking).
Select at least two economic thinkers from different schools of thought: (1) classical (Ricardo, Malthus – also Smith), (2) Marxian (Marx, Lenin), (3) neoclassical (Jevons, Walras, Marshall, Pigou), (4) institutional/historical (List, Veblen, Hobson), (5) utopian (Owen, Fourier), and (6) pre-classical (Plato, Aristotle, Aquinas, Mun, Hobbes). The one restriction is that you cannot choose Adam Smith unless you include two other economists (three in total) (e.g. you can choose one other classical economist in addition to Smith plus one from a different school of thought). Summarize each individual’s contributions to economic thinking and compare and contrast their approaches. Do you see the ideas of one economist as being more relevant today and why?
Hints
• Focus on the economic theories and ways of understanding the economy that we highlighted in class.
• The class slides are posted on the course Moodle site and are a great way to get started. The economic ideas are already summarized in bullet point form.
• For some of the thinkers/schools of thought, there are links to very short videos that give excellent overviews. Re-watching these will provide a great summary quickly.
• Linking the historical context (e.g. the rise of merchant capitalism) to specific ideas/schools of thought (e.g. mercantilist economics) can help make interesting connections.
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Economic Theories of Karl Marx and David Ricardo
Economics has long been studied, and different economists and schools of Thought have shaped it. These contributions have often been met with disagreement and different perspectives, resulting in various economic schools of Thought. This paper compares and contrasts the work of two economists from other schools. Karl Marx and David Ricardo will be examined as their economic thinking will be summarized and compared. Finally, their ideas' current relevance will be assessed.
David Ricardo
British economist David Ricardo was born in 1772. His contributions to classical economics, a school of thinking strongly emphasizing the market and free trade, are well recognized. Ricardo's most significant contribution to economics was his idea of comparative advantage, which clarifies why business is advantageous for nations (Bernhofen and Brown 228). According to Ricardo's theorem, a country tends to specialize in and export those goods for which it has the most significant comparative cost advantage or the most negligible comparative disadvantage. This idea would lead to more effective manufacturing and international commerce, eventually boosting welfare. Ricardo also created the rent theory, which clarifies how landowners profit from their investments. According to Ricardo, rents paid to landlords will increase as long as the land is needed (Bernhofen and Brown 229). Nevertheless, since there is a shortage of land, the supply cannot grow, which raises prices. This claim still holds today, especially in light of urban land-use rules.
The notion of Ricardo's theory of rent explains how landowners might make economic rent as a consequence of owning land. According to Ricardo, the differential in production between the currently utilized most productive and least productive lands determines the land rent. More marginal land is used when demand for land rises due to population expansion or greater economic activity, which raises land rents.
Ricardo says landlords may get more money from land rent without working harder or spending more. He said landlords profited from economic growth at the expense of industrial workers and company owners. Ricardo's rent theory has shaped urban land-use policy in places with limited land and severe competition (Kishtainy 90). High land rents in modern cities may force landlords to evict low-income tenants to build more expensive homes. Governments regulate land use to provide parks, transportation, and affordable housing.
Karl Marx
German philosopher and economist Karl Marx was born in 1818. He contributed to Marxism, which stresses work and class conflict. Marx felt capitalism was defective and would inevitably fail. He claimed that capitalists stole workers' surplus value (Kishtainy 81). Marx predicted capitalism would collapse because of worker-capitalist tensions. He felt that a socialist society with worker-owned means of production would emerge from this collapse. This unworkable ideology has inspired numerous socialist groups worldwide.
Marx's state/government theory is complex. He believed that the "base," or economic structure, determined a society's laws, institutions, and social interactions. Thus, in any mode of production, the state served the ruling class. Marx believed the state's job was maintaining the social order and defending the ruling class. This action includes forcefully suppressing any opposition to the exploitation mechanism. Marx argued that the working class might achieve a proletariat dictatorship by overthrowing the capitalists. Marx believed a classless society would "wither away" the state. However, Lenin and Stalin interpreted Marx's ideas differently and advocated for a centrally planned state-run economy. In the 20th century, communist states ruled all economic and social matters.
Marx's exploitation model holds that employers compensate workers for their labor power. Thus, their wages cover only the food, shelter, and clothing needed to work the next day. Supply and demand decide this wage(Kishtainy 81). The prevailing wage is generally the minimum a firm can pay without losing workers to rival employers.
Workers typically generate more than their salary. They accomplish so by working longer hours, improving output, or adopting innovative methods to boost production efficiency (Kishtainy 81). Marx calls this "surplus value," which the capitalist who owns the means of production takes. Thus, the capitalist can sell products for more than they cost to produce, creating surplus value. Workers obtain no additional value, and profit goes exclusively to the capitalist. According to Marx, this causes action exploitation (Kishtainy 81). Capitalists amass capital and develop by extracting as much surplus value as possible from employees.
Comparison and contrast of Ricardo’s and Marx’s approaches
Marx and Ricardo believed workers should share the wealth they created. Both believed that capitalists profited from workers' surplus value (Doi 179). Ricardo believed in the labor theory of value, which said a product's worth is based on its labor. Marx included this notion in his analysis. Marx established surplus value and the value employees generate beyond their income. He believed capitalists profited from this surplus value and exploited labor. Marx and Ricardo disagreed that markets would naturally distribute wealth equally. They felt capitalism and worker interests were inherently incompatible and would cause economic and social instability (Doi 178). Both predicted capitalism would collapse, with Marx believing communism would replace it.
Ricardo and Marx disagree on the market's function. Marx felt the market was faulty and favoured capitalists over workers, whereas Ricardo valued the market and free commerce (Doi̇na 176). Ricardo's theory of comparative advantage holds that free trade helps all nations, but Marx argued that capitalists exploiting workers caused inequality and injustice.
Ricardo's rent theory emphasizes natural resources like land as production factors. He argued that land rent was natural revenue and should not be distributed by the government. Marx believed that natural resources should be democratically controlled to prevent capitalist exploitation. Their perspectives on governmental involvement in the economy vary as well. Marx believed in state intervention in the economy to promote equality and justice, whereas Ricardo believed in a minimum state to enable the market to run appropriately (Doi̇na 180). Marx believed that economic regulation, wealth redistribution, and working-class social services required governmental action.
Relevance of Ricardo’s and Marx’s ideas today
Ricardo's and Marx's economic views are still relevant. Ricardo's rent and comparative advantage theories are still employed to analyze urban land-use policy (de Faria 2). Ricardo and Marx's economic views are still relevant. Ricardo's rent and comparative advantage theories continue to i...