Introduction
History of economic thought captures the origin of modern day economics. It began with the rise of industrialization and the growth of agrarian societies (The World of Economics 1). The works of philosophers reveal different schools of thoughts that explain how different concepts originated and were adopted.
The ideas of the philosophers which were adopted explain the present day economy (Kurz 28). Economic growth has led to wide spread education and technological advancement across the nations. However, there has been crisis in economic growth which has been triggered by different schools of thought. This essay will discuss the economic crisis in economic growth through economic history.
Describing the concepts history, contributors and the how the changes occurred in the economic history
In line with the World of Economics (1), economic thought began with the onset of industrialization. What triggered this thought was the desire to accumulate wealth, provide employment and improve the quality of life. The economic thought progressed in stages as different philosophers gained different understanding of the economy.
Mercantilism
Mercantilism is the thought that was held by statesmen of 1600-1700 AD. To them economic growth would be realized if the state accumulates gold as well silver. State leaders introduced import and export taxes. Economic growth would therefore come as a result of imposing heavy taxes for exporting and reducing taxes for importing gold along with silver.
Physiocratism
In 1800 AD Physiocrats who were French philosophers contradicted with the Mercantilist and argued that agriculture was the ideal option for economic growth. Therefore, they promoted less state interference in the economy. They discouraged trade and encouraged agricultural practice that would produce surplus as the source of economic growth.
Classical thought
The classical thought came with the publication of Adam Smiths, The wealth of Nations. It argued that the market could regulate itself for economic growth if the human resources, capital and states territory would be used effectively.
Although Smith refuted that agriculture was not productive, he believed that individual’s freedom to trade would lead to greater productivity hence economic growth would be realized. Another classical thought held by Thomas Malthus was that the increase in population led to increase in production.
Towards the end of the 19th century John Stuart Mill, a classical thinker, said that the economic growth favored a few. This is because the economic benefits were unevenly distributed. The population increase led to lower wages and unemployment. Only owners of means of production benefited.
Marginalism
Marginalists came up with the idea of demand and how it relates to supply. They argued that the income from the market was proportional to the investment. They also pointed out that economic growth would be realized from following the rule of demand and supply. To get hold of economic growth one would produce what the market demands. By supplying what is demanded one would make sales that lead to growth. This led to production of machinery that increased the supply of goods in demand.
Marxism
Marxist thought came in the mid 1900 and refuted Karl Marx thought that capitalism was a periodic phase of economic growth that would eventually collapse. Marx had argued that laborers who were exploited gained little as land owners enjoyed the large revenues. Competition among the land owners would lead to invention of technology to replace laborers and then the unemployed laborers would unite against the land owners and the production would cease.
Institutionalism
The institutionalist thought came in with the notion that the state should intervene and introduce measures that would regulate certain aspects of the market. This was a call for equality in the distribution of wealth. Thus, economic growth would be realized if individual interest would be replaced with societal interest.
Keynesian
John Keynes in the 1936 wrote the General Theory of Employment, Interest, and Money. Keynes argued that low wages led to less spending hence low economic growth. The government intervention was necessary to sustain the economic growth. This thought justified taxation by the government and is commonly referred to as Keynesian.
Other contributions
Galor and Moa (2) contributed to the concept of economic growth by relating it with Darwins theory of natural selection. They argue that population growth has an impact on the growth of the economy. A period of stagnation existed before economic growth where the population increase was also constant. Technological development was constant. This era set a platform for a constant economic growth that followed in the next period.
Higgs (1) indicates that before 1500 AD, the world population lived by producing food for subsistence. Later, they began agricultural farming which led to deforestation and environmental changes. The population growth and economic growth were similarly slow and there were rare innovations on technology. By 1700 AD people began domesticating animals and had cleared a large area of the forest for agriculture, a move that affected the ecology.
The economic growth was still slow with increased technological developments as mining began and extraction of oil became an asset for development. The period following 1900 AD was characterized by a sharp increase in oil extraction and mining as well as enrolment in education institutes. The generation and use of energy are advancements that change the economy and lead to rapid growth.
Discussing assumptions it is based on whether they are still relevant, and whether the method of reasoning used is still valid in my opinion
The crisis in economic growth has shifted different economic thoughts due to the changes in the society and the ability of the population to adapt to change. It is evident that desire to accumulate wealth is constant across history and that adaptability to change is important for economic growth (Galor and Moa 2).
Economic growth is dependent on human resources. The manpower to manufacture and to operate machinery is important. Moreover, natural resource is an asset to obtain wealth. For instance, extraction of oil has led to rapid and sustained growth of the economy of the oil producing companies. Sustaining economic growth may be challenging as there are different factors that are considered.
Mitch (1) points out that economic growth is largely dependent on how a state makes use of their human resources. The training, skills, agility and decisions have an impact on the outcome of the economy. In order to enhance economic growth, human beings have enrolled in educational institutes to acquire knowledge and skills that are needed.
The training is important and is seen as human capital. This is because education is viewed as an investment to enhance economic output. Moreover, advancement in technology calls for manpower ability to operate the technology so as to realize increase in production. Education is universally accepted and creates many opportunities.
Education has significantly led to technological change which has caused speedy economic growth. Skills based on experience have been used to improve economic growth. Experiences vary from one person to another and people with certain experiences may be valuable in the economic sector yet they have little education than others. Therefore, education should not be perceived as a necessity for economic growth.
Thus, education improves the economic growth and complements other factors that lead to economic growth. These factors include general health and political environment among others.
The increase in population leads to increase in human capital hence production leads to economic growth. This is because increased production makes people to accumulate wealth which causes them to change lifestyle. Moreover, economic growth can be realized from producing surplus instead of increasing tax as Mitch (1) indicates. Although motivation of the human resource is relevant for economic growth, it is highly unpredictable.
Discussing how the concept is still being used today and how it influences decision making today
The idea of taxation of imports is used to date and has been extended to other commodities and not on gold alone. The concept is used today as countries see wealth as a source of power hence economic growth is a prerequisite for many states. Other states have decided to invest in technology, education among other initiatives so as to support a continuous economic growth.
Some economies have dependent on agriculture for their economic growth with the help of technology. Individual skills are highly considered and expertise training is given high regard in some sectors like nuclear energy. Nuclear energy is used as a source of energy so as to support a fast growing economy (Higgs 1).
Mitch (1) says that some countries have colonized others so as to acquire wealth. The raw materials obtained from less developed countries are cheap. When they are processed, the goods are sold expensively. Similarly, the cost incurred in extraction of oil is far less than the cost of the end product, hence the commodity is expensive because it is rare and the demand is high.
Summaries of two main articles
Great economist and their time: a history of economic theory, by the World of Economics
According to the World of Economics, economic crisis began as soon as the society changed their focus from agriculture to industrialization. This article outlines the history of the stages of the economic thought that have occurred in order to understand the economic crisis in economic growth. The stages begin from mercantilism, physiocratism, classical thought, marginalism, Marxism, institutionalism and keynesian.
In mercantilism, statesmen believe that economic growth would be realized with the accumulation of wealth through gold along with silver. Economic growth will be realized if taxes on imports and exports are imposed. This thought is contested by the physiocratists who argue that the state should not interfere with the economic growth. Instead, agriculture should be adopted in place of trading the precious metals. Surplus agricultural produce could lead to growth in economy.
Thereafter, the classical thought emerged with the proposition from Adam Smith, a classical thinker, that the market can control itself to realize economic growth. Smith did not believe that agriculture would lead to economic growth. Smith also proposed that effective management of the human resources, the land and the resources can lead to economic growth.
Thomas Malthus a classical theorist also suggested that increase in population would lead to increase in production hence economic growth. John Stuart Mill criticized the classical thought by saying that the idea brought inequality. The land owners benefited from production and the laborers gained very little; hence it promoted unfair distribution of earnings.
Marginalism emerged with the idea that economic growth can be obtained if the principles of demand together with supply are adopted. Marxism followed and Karl Marx was criticized for the idea that capitalism will crumple after the unemployed masses that are replaced by technological equipment unite and overcome the land owners.
Thus the institutionalists also come forward to propose that the state intervene in the economy so that equity of income is realized. Lastly, Keynesian thought argued that low income does not lead to economic growth because it reduces spending.
Natural Selection and the Origin of Economic Growth by Galor and Moa
Galor and Moa (2) mention that economic growth has gone hand in hand with the population of the world. According to them economic growth can be understood by looking into the phases the economic history has undergone. First, there is a phase of stagnation in economic growth and population growth. This phase which existed before the year 1750 is known as Malthusian stage and there is little technological development. Human resources constant and quality of life is not emphasized.
The second phase existed between 1750 and 1870. In this phase, the population and the economic growth have a positive relationship. Technology increase is higher than in the previous phase and the economic growth slowly increases because of the high increase in population. People become motivated to advance quality and the idea spreads across the globe. This stage sets the stage for industrialization.
The third phase that begins from 1870 onwards has a steady increased economic growth. The economic growth is higher than the population growth. Human resources are devoted to quantity and higher production. Humans are as well focused on the economic growth (Shearer 1). The technology development is rapid and leads to greater increase in economic growth. They note that technological advancement has not guaranteed a stable economic growth.
Conclusion
Economic thought has shifted from one theory to another as changes in the society occurred. Due to different economic ideas, economic crisis in economic growth have occurred. Economic growth began with the onset of industrialization. The economic thought history stages are mercantilism, physiocratism, classical thought, marginalism, Marxism, institutionalism and Keynesian. The concepts emphasized how a state could accumulate wealth to realize economic growth (The World of Economics 1).
Galor and Moa (2) mention that at the beginning, the population and economic growth were positively related and little advancement in technology existed. The next stage was followed by increased population growth and economic growth. Technology development increased and led to positive change in growth although the effects were absorbed by the population growth. The last stage had numerous technological developments. The economic growth was high but the population was low.
Today, economic growth is important since accumulation of wealth is seen as a source of power. Education, agriculture and technology have been given great attention as they produce opportunities for economic growth. Furthermore, decisions are made in the interest of realizing growth.
Works Cited
Galor, Oded and Moa, Omer. Natural Selection and The Origin of Economic Growth. Quarterly Journal of Economic, 2002. Web.
Higgs, Kerryn. A Brief History of Economic Growth, 2011. Web.
Kurz, Heinz. D. Whither the history of economic thought? Going nowhere rather slowly, 2007. Web.
Mitch, David. Education and Economic Growth in Historical Perspective: EH.Net Encyclopedia, 2005. Web.
Shearer, Ronald. The concept of economic growth, 1961. Web.
The World of Economics. Great economist and their time: A history of economic theory, 2011. Web.