HISTORY OF ECONOMIC THOUGHT

  Starting with the remarks made on this subject in the later works of Marx and Engels, Hilferding studied the structural changes of capitalism in the last quarter of the 19th century. He began with capitalist concentration, the concentration of banking and the preponderant part played by the banks in the launching of stock companies and the mergers of enterprises. From this Hilferding defined what he called   finance capital , that is, banking capital invested in industry and controlling it either directly (by the purchase of shares, the presence of bank representatives on the boards of directors, etc.), or indirectly (by the establishment of holding companies, concerns and “influence groups”). Hilferding discovered the preponderant role played by banks in the development of heavy industry, especially in Germany, France, the United States, Belgium, Italy and Czarist Russia. He showed that these banks represented the most “aggressive” force in political matters, partly because...

The most “obvious” phenomenon of the new period in the history of capitalism, which opened with the last quarter of the 19th century, was undoubtedly the series of wars and expeditions, the creation or the expansion of colonial empires: the French expeditions to Tonkin (now Vietnam), Tunisia and Morocco; the conquest of the Congo by Leopold II; the British expansion to the boundaries of India, Egypt and the Sudan, East and South Africa; the German and Italian expansions in Africa, etc. This colonial expansion stimulated the first efforts by Marxists to interpret the development of this period of capitalism. Karl Kautsky emphasized the commercial reasons for imperialist expansion. According to him, industrial capital cannot sell the whole of its production within an industrialized country. In order to realize surplus value, it must provide itself with markets made up of non-industrialized countries, essentially agricultural countries. This was the purpose of the colonial wars of expansi...

 GENERAL GLUT In macroeconomics, a general glut is an excess of supply in relation to demand, specifically, when there is more production in all fields of production in comparison with what resources are available to consume said production. GLUT CONTROVERSY Malthus' basic argument is that  higher propensity to save and investment leads to a reduction in consumption and ultimately excess supply . Ricardo's basic argument is that capital accumulation can not go indefinitely unless the capital is productively employed, thus there can not be over production. MALTHUS THEORY OF GLUT In Britain in 1818, a large decline in agricultural prices led to the severe depression of 1819, and the high levels of unemployment that followed led to general social unrest. Malthus answer was to explain how it was possible for the demand for goods and services to be less than the amount of goods and services produced - so his was a theory of deficient demand - and when that happened, goods would pil...

WILLIAM STANLEY JEVONS Born in Liverpool, England, Jevons studied chemistry and botany at University College, London. Because of the   Bankruptcy   of his father’s business in 1847, Jevons left school to take up the position of assayer at the Mint in Sydney, Australia. He remained there five years, resuming his studies at University College on his return to England. He was later appointed to the post of chair in political economy at his alma mater and retired from there in 1880. Two years later, with a number of unfinished books in process, Jevons drowned while swimming. He was forty-six. THEORY OF VALUE The theory held that the utility (value) of each additional unit of a commodity—the marginal utility—is less and less to the consumer. When you are thirsty,  for example, you get great utility from a glass of water. Once your thirst is quenched, the second and third glasses are less and less appealing. Feeling waterlogged, you will eventually refuse water altogether. “Val...

  Carl Menger, an Austrian economist who wrote   Principles of Economics  in 1871, is considered by many to be the founder of the Austrian school.  Menger explained in his book that the economic values  of goods and services are subjective in nature, so what is valuable to you may not be valuable to your neighbor. Menger further explained that with an increase in the number of goods their subjective value for an individual diminishes. This valuable insight lies behind the concept of what is called Diminishing Marginal utility. Later on, Ludwig Von Mises, another great thinker of the Austrian school, applied the theory of Marginal utility to money in his book,  Theory of Money and Credit  (1912).The theory of diminishing marginal utility of money may, in fact, help us in finding an answer to one of the most basic questions of economics: How much money is too much? Here also, the answer would be subjective. One more extra dollar ...

Neoclassical economics is a broad approach that attempts to explain the production, pricing, consumption of goods and services, and income distribution through supply and demand . It integrates the cost-of-production theory from classical economics with the concept of utility maximization and marginalism. Neoclassical economics includes the work of Stanley Jevons, Maria Edgeworth, Leon Walras, Vilfredo Pareto, and other economists. It emerged in the 1900s. In 1933, imperfect competition models were introduced into neoclassical economics. Some new tools, such as indifference curves and marginal revenue curves, were used. The new tools were instrumental in improving the sophistication of its mathematical approaches, boosting the development of neoclassical economics. In the 1950s, Keynesian microeconomic theories and neoclassical microeconomic theories were combined. The combination led to the neoclassical synthesis, which has dominated economic reasoning since then. Assumptions of N...

Karl Marx  is  one of the most controversial figures in the Western world. His relentless criticism of   Capitalism    and his corresponding promise of an inevitable, harmonious socialist future inspired a revolution of global proportions.  Labor Theory of Value The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx’s masterpiece,  Capital  (1867). The theory’s basic claim is simple: the value of a commodity can be objectively measured by the average number of labor hours required to produce that commodity. If a pair of shoes usually takes twice as long to produce as a pair of pants, for example, then shoes are twice as valuable as pants. In the long run, the competitive price of shoes will be twice the price of pants,  regardless of the value of the physical inputs. The labor theory of value was not unique to Marxism. Marx did attempt, however, to turn the theory against the champions of capita...

  The Malthusian Theory of Population involves arithmetic food supply growth and exponential population growth. This theory was first published in 1798 in Thomas Robert Malthus’s piece,  An Essay on the Principles of Population . Malthus believed that the population could be controlled in order to balance the food supply through positive checks and preventative checks. These checks led to the Malthusian catastrophe.  Population and Food Supply According to Thomas Malthus, populations grow in geometric progression. A geometric progression refers to a number sequence in which each term following the first can be found by multiplying the previous one with a common ratio, which is a fixed, non-zero number. For instance, in the sequence 2, 6, 18, 54, 162, the common ratio is 3.  Malthus also stated that food production increases through arithmetic progression, which is a number sequence with a constant difference between consecutive terms. For example, in the sequence 2, ...

Malthus was interested in everything about   Populations . 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. Noting that while food production tends to increase arithmetically, population tends to increase naturally at a (faster) geometric rate, Malthus argued that it is no surprise that people thus  choose  to reduce (or “check”) population growth. People can increase food production, Malthus thought, only by slow, difficult methods such as reclaiming unused land or intensive farming; but they can check population growth more effectively by marrying late, using contraceptives, emigrating, or, in more extreme circumstances, resorting to reduced Healt...

  This theory is based on the marginal and surplus principles. The marginal principle explains the share of rent in national output and surplus principle explains the division of the remaining share between wages and profits. Ricardian system considers agriculture as the most important sector of the economy. The difficulty of providing food to expanding population is the main problem. According to Ricardo, there are three major groups in the economy. They are landlords, capitalists and labourers among whom the entire productive land is distributed. It is the capitalists who initiate the process of economic development in the society by reinvesting profits and, thus, increasing capital formation. The total national output is distributed among the three groups as rents, profits and wages, respectively and the share of each group can be determined as under: 1. Rent per unit of labour is the difference between average and marginal product or total rent equals the difference between ave...