The Idea of Free Market Economy
A discussion on free market economy is interesting because it presents the views of various scholars. From classical scholars such as Thomas Ricardo and Adam Smith to recent scholars such as Karl Marx, the idea of demand and supply is believed to influence the prices of goods and services in the market. In this regard, free market economy means that the government should try as much as possible to keep off from economic activities of the country in case economic growth and development is to be achieved.
This is amazing because the government is thought by many to influence each aspect of life yet economics scholars argue that the market should be allowed to exist according to its own logics. It is also fascinating to note that the market is self-regulating and self-checking implying that producers would probably manufacture goods that would suit the market. Manufactures would frequently check the buying power of consumers before producing goods (Sobel, 2002).
The government does not have any power to set the price of a good. In fact, Adams Smith observed that the government should only provide an enabling environment for individual fulfillment. This means the state would only exist to offer important services that facilitate business activities such as provision of transport and communication networks, provision of security and advisory services. However, some scholars posit that the government should always be involved in economic activities.
For instance, the state should regulate the activities of traders through licensing and approving products. This is because human beings have issues related to health. Businesspersons could perhaps offer any product to the market without considering the health and security of people.
Some observe that the government should only intervene in the market whenever there is an economic turmoil or crisis, such as the one witnessed in 2007 in the US. In this regard, the government needs to withdraw immediately normalcy and constancy is restored in the market.
The idea of market logics is very important since it would help an individual in making policies in future. The idea would be remembered because many people think that the government should always control the activities of businesspersons. Whenever prices go up, people put much pressure on their respective governments to lower prices. They do not understand that prices are affected by the demand and supply.
Historical Schools of Thought in Economics Regarding the Relationships among Factors of Production
Each school of thought had its own definition of the phrase factors of production. However, scholars have not been able to determine the most powerful factor among the four factors. What is surprising is that each continent has its own definition. For instance, the time of entrepreneur is perceived to be the most dominant factor among others in the Australian perspective.
Time would therefore influence the performance of the organization. In other words, it would mean that production of goods and services is influenced by the availability of time. Neoclassical scholars, as well as other economies that support the basics of the free-market economy, usually share this view.
Critics of neoclassical theory observe that entrepreneurship is simply a type of labor, which should not be treated in a special way. From a Marxian perspective, labor is an important factor of production that influences the rest. This is because labor is employed in producing capital goods (Friedman, 2007).
A theory formulated in France before Adam Smith suggested that production of goods and services is influenced by the relationships between the poor and the rich. The theory was referred to as physiocracy. According to the theory, four factors of production exist, including capital, entrepreneurship, land, and labor. Classical theorists, such as Adam Smith, David Ricardo, and their adherents, believed that resources influence the production process.
The classical theorists went a notch higher to discuss the distribution of costs and value in the production process. To Ricardo and Smith, land would refer to natural resources such as air, soil, water, and minerals. The entrepreneur converts the natural resources into usable products. From land, the owner could perhaps earn capital, which is referred to as rent. Labor is another factor of production that refers to human effort applied in the manufacturing process.
Through labor, an individual receives wages. The last factor of production is the capital stock, which refers to manufactured goods and services. In other words, it is popularly referred to as the means of production. Capital stock is the most important because it is employed in producing other goods. For instance, machinery and raw materials are used to manufacture finished products.
Marxian Economics
Those intellectuals who utilized the works of Marx, as well as other works, to define the economy formulated Marxian ideals. It should be noted that Marxian economics is different from the radical views of Karl Marx. This topic is of interest because many people rarely distinguish between Marxian economics and Marxism. Marx utilized the writings of classical scholars such as Adam Smith and Thomas Malthus to formulate his theory on capitalism.
In his analysis, Smith postulated that division of labor is an important component of economic growth. This means that economic growth would be achieved if workers were to specialize in certain areas. Smith noted that labor is a resource that could be faced out of the market.
This means that some forms of labor would be eliminated with time. However, Smith commented that market forces were self-regulating implying that the government would not interfere in any way. Marx based his argument on the findings of Smith (Bottomore, 1998).
Marx found out that capitalism was responsible for massive economic growth in most parts of Europe. Since capitalism had taken root in Europe, workers underwent some form of suffering since their services were not needed. Marx differed with Malthus on the role of capitalism as regards to population increase. Malthus had earlier noted that population increase was a result of biological pressure whereas Marx noted that surplus population was caused by capitalism.
It is interesting to learn that capitalism is responsible for the increase of population. States would want its people to multiply in order to obtain a large workforce, which would push the economy forward. Marx referred to this sort of population increase as the reserve army of labor.
Before Marx conducted an analysis on economics, Ricardo had suggested that any good is priced based on the cost of labor. However, Marx went against Ricardo’s postulation to suggest that a product is valued more as compared to the worker in the capitalist society. This is a shocking revelation, which might be hard to forget.
Contributions of Plato to the Field of Economics
Plato was one of the classical philosophers who contributed greatly to the development of modern economics. Even though he lived more than 2000 years ago, his contributions are still valid in the modern society. Plato observed that the state had a bigger role to play in the lives of people. The state could either make or destroy an individual, based on the choice of the philosopher King.
According to him, the state destroyed his teacher, Socrates, because he interfered with the status quo by urging youths to rise against the ruling class. His ideas on the division of labor are still applied in the modern society. Plato believed that certain professions were important than others, such as construction, farming, and curing the sick.
In this regard, Plato observed that each person should play his or her role faithful if economic stability were to be achieved in a state. The philosopher King has the role of protecting the people by coming up with effective policies that would encourage trade. In this case, the philosopher King should be an intelligent person meaning that he or she should have adequate education.
The philosopher King should ensure that Justice prevails, by protecting the helpless in society. It is only through wisdom that a leader would know what to do in order to promote the social and economic welfare of the poor. In society, the role of soldiers is to offer security. Soldiers are spirited and courageous people because they risk their lives to ensure that justice prevails.
They work hand in hand with the philosopher King to guarantee tranquility in society. Citizens have a sole responsibility of ensuring that taxes are paid in time. The populace is highly appetitive implying that they need to be guided. It is the role of the philosopher king and soldiers to ensure that taxes are paid in time. Citizens must support the King by paying taxes.
However, Plato was against democracy because he believed that democracy is the tyranny of the multitude. In other words, democracy is the worst form of government that should never be allowed to exist in any economy.
Plato advocated for communism because he believed that individual possessions were to be treated as the belongings of the community. Such goods would be used effectively to promote the social welfare of the community. Moreover, Plato suggested that communal belongings were the property of the state. The state had the right to use the belongings of an individual for the good of the public.
This is a common phenomenon even in the modern society (Postone, 1993). The government has always interfered with individual property to promote the welfare of the society. For instance, land is considered the property of the state and therefore, the state has the right to take it from an individual to construct important structures such as schools and hospitals. This is amazing because an individual will never be given any form of property by the government.
The Role of Technology in Globalization
In the modern society, goods and services are produced and are consumed almost at the same time. This is attributed to globalization where geographical distance is no longer an issue to businesses. Goods produced in the US and Europe could reach other parts of the world such as Asia and Africa within a day. Technological advancements have redefined business techniques in the modern world.
Marketing strategies have also changed greatly because people use sophisticate methods, such as the use of social media. Companies all over the world utilize the social media such as Facebook and Tweeter to reach out to their target markets. It is surprising to note that people in the US are affected by conflicts in the Middle East. The world is now considered a global village because a misunderstanding in one part of the world affects businesses globally.
When the fuel prices go up in one continent, the prices of goods and services are affected in other continents. The recent Arab uprisings show that countries are no longer self-reliant but instead they depend on one another. The economic crisis witnessed in the US and Europe affected businesses globally. All these changes in the international system are attributed to the advancements in technology.
The Arab uprisings were well coordinated through the social media, particularly Facebook and Tweeter (Harvey, 2010). Through globalization, citizens in Middle East realized that their governments were not doing enough to promote their social an economic welfare.
The poor were becoming poorer while the rich enjoyed themselves with state resources. This could be compared to the standards of living in Europe and the US whereby the state ensures that each person enjoys societal resources.
Technological innovations, particularly the invention of a computer, have promoted many sectors of the economy. Each sector in the economy depends on technology for development. In the transport sector, the development of modern transportation systems, such as air transport, has boosted the world economies. No one knows what tomorrow might bring because of technological innovations.
Global Economic Issues
The major problem facing many economies in the world is the issue of sustainability. Due to human activities such as mining, farming, and settlement, the environment has been destroyed, particularly in the developing countries. The population pressure has forced governments to resettle people in areas initially covered by forests. This has led to global climate change meaning that human activities have affected the rainfall pattern.
Currently, weather pollution is a global issue that has threatened world security. Countries of the west argue that the poor states should seek for alternative methods of development other than coming up with industries that are known to emit dangerous gases that affect the environment. Such industries include mining plants that emit harmful substances such as copper, mercury, and lead.
The same plants are known to generate waste products that are dumped in the sea, which affect aquatic life. On the other hand, the poor states argue that the developed states should set up a considerable amount of money, which is to be used to conserve the environment. This is because they emit harmful products in large quantities. The US and Japan are the leading nations in generating harmful chemicals that affect the global environment (Harvey, 2010).
The issue of sustainable economic growth has led to the formation of various world bodies such as the UNEP to oversee the preservation of the environment. However, the environment is yet to be conserved because no country is ready to forfeit its economic development strategy in favor of conserving the environment.
Global conferences, such as the Geneva and Rio conferences have been held successfully but states lack the good will to implement the provisions of world environmental bodies. What is fascinating is that states appreciate the fact that the environment needs to be conserved yet they are not willing to drop their economic strategies to conserve the environment.
References
Bottomore, T. (1998). A Dictionary of Marxist Thought. Oxford: Blackwell.
Friedman, M. (2007), Price Theory. New York: Macmillan.
Harvey, D. (2010). A Companion to Marx’s Capital. London: Verso.
Postone, M. (1993). Time, Labor, and Social Domination: A Reinterpretation of Marx’s Critical Theory. Cambridge: Cambridge University Press.
Sobel, J. (2002). Can We Trust Social Capital? Journal of Economic Literature, 40(1).