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Economic Development, Labor Theory of Value and Role Of Government in an Economy Exploratory Essay

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Updated: Feb 1st, 2019

Introduction

This reflective treatise attempts to review the thoughts of Karl Marx, David Ricardo, J.S. Mill and Bentham on the issue of economic development, labor theory of value and role of government in an economy.

Malthus and Ricardo

Ricardo and Malthus share similar views on the development of a country’s population. Malthus nicknamed economic crisis as gluts. The two theorists covered the causes of poverty and wealth. Unlike Ricardo, Malthus suggested that the economic crisis is created by the reduction in profits due to the inability of an economy to create efficient demand. Further, Malthus believed that disproportions in income distribution were responsible for the insufficient demand.

Thus, Malthus concluded that uncontrolled savings as practiced by the capitalists, eventually reduces demand while active consumption on the part of the landlords will increase the demand. From this argument, Malthus opined that the gluts could be salvaged through income redistribution from the hands of the landlords to the hands of the capitalists (Malthus 310).

Although Malthus and Ricardo suggest that income distribution is instrumental in capital accumulation, Ricardo presents a more intellectual and interesting construction on rent as a component of real production excesses.

Ricardo opines that the excesses in production in the form of rent have nothing to do with free trade but through direct ownership. In the view of Ricardo, rent was thus a representation of a form of negative money within the reach of the landlords from the benefits of excesses of land production (Ricardo 286).

Basically, the negative money was subject to its scarcity. In contrast, Malthus considered rent as an element of economic surplus from the factors of production. Unlike Ricardo, Malthus concentrated on economic development and general persistence of the gluts as part of a wider political economy. On the other hand, Ricardo adopted a less restrictive approach in explaining economic development in terms of objectives and legislation (Malthus 322).

Malthus was concerned by the conflict that may occur as a result of continuous tension catalyzed by restricted operation of the political economy since political plane and morals would be ignored by the capitalists. Due to large public debt, long term economic growth is likely to be compromised since the factors of products will eventually become very expensive and non competitive since such economy has to trade with competitors that have relatively affordable factors of production.

Ricardo proposed special conditions that a country may adopt to be better off through restricted trade (Ricardo 293). Specifically, under individual sector scrutiny, it is apparent that trade may become more of a partnership function than mere exchange of goods and services. These partnerships also deal with social aspects of trade. This idea was inspired by the comparative advantage theory (Malthus 314).

From the above reflection, it is apparent that Malthus was more concerned about the social elements of economic development and was very specific in the need to control the gluts for an economy to sustain itself in the competitive market. Malthus was unapologetic in his argument that rent is an element of economic surplus from the factors of production, and has an impact on the shape and nature of development of a country’s population.

This view is opposed by Ricardo who opines that rent is a mere representation of a form of negative money within the reach of the landlords from the benefits of excesses of land production (Ricardo 290). Thus, rent should not form substantial determinant of economic development within the population of an economic territory.

J.S. Mill and Bentham: The role of government

In the views of J.S.The mill and Bentham, the government has the role of accountability for economic, social and political decisions. Adapting the utilitarianism theory, Mill and Bentham belong to the same school of thought that proposed a controlled government participation in economic development.

Thus, the government should be regulated by the electorates to serve the economic interests of the mass rather than that of some few private individuals. Mill and Bentham argue that human beingsposses same intrinsic worth based on the right to exist and get value from the government in the form of public good. The mass has an inherent worth that has to be treated with respect by the government in power (Senior 337).

Since human beings are sentient beings, Mill and Bentham opined that they have the moral right to be respected and dignified by the government whenever economic policies are being implemented. Regardless of rationality or irrationality, human beings have the right of choice and freedom to influence the major decisions that the government of the day proposes.

Considering the‘consequentialism’ perspective, Mill and Bentham argue that good actions of the government are those that cause a great ratio of good results to bad results in the public scale. Thus, a government should adopt a system of governance characterized by balancing government policies with social welfare as the determinant factors (Malthus 311). Reflectively, these views are spread in policy formulation, review, implementation, and projection.

Unlike J.S. Mill, Bentham proposes minimal intervention and suggests the role of government as restricted to provision of freedom and security in the economy. Bentham suggests that the minimal intervention will enable free trade and expansion of the economy without interference by free irresponsible power barons.

Notwithstanding, Bentham urges the government to adapt a spectator approach in the public economy and let the forces of the market influence its direction. Mill proposes more intervention in the political sphere of the economy to serve the interest of the mass.

He proposes the creation of human laws that would eventually manage wealth distribution since “the laws of production may be natural laws, but the laws of distribution are created and enacted by human beings” (Malthus 315). Thus, Mill believes that politics and philosophy are dependent variable of the economic well being of a nation.

Unlike Bentham, Mill adopts a deontological approach which base wrongness and rightness on intrinsic characteristics, with the consequences being a negligible influence on the same within the political spheres of the economy. Mill develops the notion of right on what is commonly referred to as ‘ethics of common sense’ and is actively functioning on self realization and naturalism for the sake of public wellbeing and interest in the economy.

He looks into the good will, proper motive, first and second categorical imperatives, and immorality as components of irrationality in defining what is moral within the political class in their economic policies. J.S. Mills covers the aspect of rationale as part of moral significance, good character, practical wisdom and the contemplative faculty in the interventions of the government. However, Bentham ignores these elements and only campaign for a little intervention on visibility and freedom of the private businessmen in the economy (Malthus 323).

In the views of Mill, a better financial and economic policy model of any government should have five key attributes. It should have a better management of its public and debts finances. The second aspect considers arrangements that ensure stability in monetary policies. Third, the government created incentives should help in creating domestic and international economic development goals.

Fourthly, the system ensures that there is creation of an independent central bank for the state. This helps in setting and dealing with the economic policies that create desirable economic conditions in the economy (Malthus 310). However, Bentham has a divergent opinion on the scope of government participation in the economy.

Instead of the fairly proactive participation by government as proposed by Mill, Bentham suggests that the role of government should end at freedom assurance for private controllers of factors of production so as to operate in a free economy. The position taken by Bentham is informed by the need for an economy to regulate itself away from selfish intervention policies that may be introduced by power barons to support definition partial gains.

Karl Marx’s labor theory of money vs. Senior or Ricardo on profit origin

Although Karl Marx and David Ricardo have presented strong emphasis on exchange value, since they shared the thought that labor quantity embodied in services and goods have an impact on exchange ratio, the two economics theorists developed a totally different approach in discussing this relationship.

Karl Marx argues that production prices represented by the C+V+S could be equated to “dead labor or fixed capital plus living labor or variable capital plus surplus value or labor” (Marx A contribution to the critique 402). Marx’s labor theory of value adopts a very simple approach to describe the type and source of profits in a production activity.

Marx suggested that market equilibrium will be reached when market prices and production prices are equal as market competition will conspire to redistribute the excess value. This interaction will ensure that profit would be equalized by the competition. This is summarized in the assertion that “profit rate could be expressed by the equation: r = s/v/(c/v + 1)” (Marx A contribution to the critique 398).

Marx acknowledged the dynamics of the labor market. In the ideal labor market, Marx noted that increasing flexibility and efficiency of the labor market is an indispensable complement of the reforms that are market based. According to Marx “the value of the commodities without the daily supply, the laborer cannot renew his vital energy by the value of the means of subsistence that are physically indispensable” (Marx Capital 395) since this determines the value of labor.

In the ideal, the segmentation degree is controlled by union and government regulations that are designed to encourage rigidities and drive the costs of labor above the market clearing level. Therefore, the informal sector remains non proportional to reflect on the magnitude of the reforms required. When there is an assigned probability of selection within a specific period of time, then the probability of an ingression into formal employment should be a rising experience function in the labor ratios.

The explanation given by Ricardo about the origin of profits does not touch on the competition or the abstract labor. Instead, Ricardo opines that profit at a zero rent added to wages would equate to prices in production.

This argument was informed by the assumption that profits and wages were the primary determinants of prices. Generally, the prices in this relationship are compared to the value of labor whenever the ratio of labor cannot balance with the capital available in dependent industries. In the instances of dissimilar labor to capital ratios, the variance was treated as insignificant.

Through the modifying principle, the theorist Ricardo was successful in elucidating differences that may exist in the interaction of the explicit labor and price in the market. The rate variances are persistent in both empirical and casual rates despite the theoretical balance proposed by Marx labor theory of value. These variances are attributed to inconsistencies between casual and empirical labor to capital ratios (Marx Capital 394).

Unlike Ricardo who argued that profit and wage were the primary determinants of prices, Marx was of the opinion that market equilibrium will be reached when market prices and production prices are equal as market competition will conspire to redistribute the excess value. Ricardo adopts different corn models which equated net product to rate of profit with the assumption that rent was excluded. Thus, increasing the function of production would eventually stabilize the profit rates in any long run production function.

Though the approach adopted by Marx was very abstract, he succeeded in extrapolating the factors of product to different labor determinant ratios such as socially standard compulsory labor and the abstract labor to a homogenous labor called the ‘multiplier of unskilled labor’. Marx ignores the dissimilarities between series of labor types or quantities in explaining the origin of profit unlike his counterparts such as Ricardo and Senior.

Works Cited

Malthus, Robert. Definations of Political Economy: Preceded by an Inquiry Into the Rules which Ought to Guide Political Economists in the Definition and Use of Their Terms, with Remarks on the Deviation from These Rules in Their Writings, Cambridge: John Murray, Albemarle-Street, 1827. Print.

Marx, Karl. Capital: An Abridged Edition, London, UK: Oxford University Press, 1995. Print.

A Contribution to the Critique of Political Economy, New York, NY: Hard Press, 2013. Print.

Ricardo, David. On the Principles of Political Economy, And Taxation. 3rd ed. 1821. Michigan, LA: University of Michigan. Print.

Senior, William. An Outline of The Science of Political Economy, New York, NY: W. Clowes and Sons, 1836. Print.

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