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ECONOMIC THOUGHT

MASTER OF PHILOSOPHY (ECONOMICS)

ECONOMIC THOUGHT

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SYLLABUS

Unit – I: Nature and Significance of Economic Thought – Hebrew, Greek, Plato, Roman Economic Thought. Economic Thought in Ancient India – Kautilya’s views – Economic ideas of Thiruvalluvar – Comaparison between the two views.

Unit – II Medieval Economic Thought – St.Thomas Aquinas – Mercantilism and its policies – Physiocratic doctrines – Net Product – Circulation of wealth – Practical policies. Classical School – Features – Adam Smith Economic Ideas – David Ricardo – Theory of Rent – Malthusian Theory of Population – J.B.Say, J.S.Mill – Stationary State – The Nationalists Thought – Adam Muller – Fredrich List.

Unit – III Karl Marx – Theory of Class struggle – Surplus value – Marxian predictions concerning capitalism – Scientific socialism. Austrian School of Thought – Alfred Marshall – Consumer’s surplus, Elasticity of Demand – Representative firm – Welfare Economics Pigou, Walras, Pareto.

Unit - IV Neo – Classicism – Knut – Wicksell – J.B.Clark – Dynamic theory of profit – Irving Fisher – Quantity theory of money – Taussig’s Economic Ideas. Institutional School – Economic ideas of Veblen – Theory of leisure class – W.C.Mitchell.

Unit – V Keynesian Revolution – Theory of Employment, Keynesian Vs Classicism Recent Indian Economic Thought – R.C.Dutt – Naoroji – M.G.Randade – M.K.Gandhiji – Dr.B.R.Ambedkar – Rajaji – Nehru – V.K.R.V.Rao – C.N.Vakil – D.R.Gadgil – Indira Gandhi – Nobel Laureates Since 1990 – Amarthya Kumarsen.

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Reference Books: 1. Loganathan 2. Alexander Grey 3. E.Roll 4. L.H.Haney 5. Dr.Shanmuga 6. V.B.Singh 7. Sankaran.S 8. Sundram History of Economic Thought Development of Economic Doctrines History of Economic Thought History of Economic Thought Indian Economic Thought From Naoroji to Nehru A History of Economic Thought Development and Policies

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UNIT 1

NATURE OF SIGNIFICANCE OF ECONOMIC THOUGHT

Nature of Economic Thought: In the earlier stages of the development of civilisation, economic thought sub served other goals and interests and under the circumstances, no one would blame the ancient thinkers for having failed to develop a systematic body of economic doctrines. the real breakthrough came with the ushering in of the commercial era and the establishment of mercantile states in the 15th century. This not only led to the replenishment of economic ideas but also led to the development of various economic institutions which governed human life and progress and still do so. A study of these ideas from the earliest times to the present day is the concern of the subject ‘History of Economic Thought’.

A History of Economic Thought, as the title itself suggests is a probe into the origin and growth of economic ideas. It is a historical account of the development of economic doctrines as also of their impact on economic institutions and activities. Professor Haney has defined it as “a critical account of the manifestation”. According to Bell, “it is a study of the heritage left by writers on economic subjects”.

Schumpeter holds that economic thought is “the sum total of all the opinions and desires concerning economic subjects, especially concerning public policy bearing upon these subjects that at any given time and place, float in the public mind”. Thus, a History of Economic thought “traces out the historical changes of attitudes, mentioning analytical performances in passing. Such a history would need to display the close association that exists within the attitudes of the public mind in the sense defined; with the kind of problems that at any given time interest analysis and from general attitude of spirit in which they approach their problems.”

History of Economics, Economic History and History and History of Economic Thought: History of Economic Thought should not be confused with History of Economics and Economic History. Although, they are all studies of the constituents of subject matters and varying in emphasis, they are separate branches of study having different subject

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matters and varying in emphasis on different aspects of the subject matter. Whereas Economic History is an objective study of the development of economic life of a particular society, History of Economic and History of Economic life of a particular society, History of Economics and History of Economic Thought have an element of subjectivity in studies relating to them. Economic History studies the origin and growth of commerce, manufacture, trade, banking, transportation and other economic

phenomena and institutions, i.e., it deals with the ideas men have concerning economic facts and forces. In short, Economic History treats of facts; History of Economics and History of Economic Thought treat of the theory of these facts.

Though Economic History and History of Economic Thought constitute separate branches of study, they are closely related. Economic ideas are directly or indirectly motivated by the economic conditions and environment of a country. When these ideas become

ingrained and are widely accepted, they begin to influence economic polices and thus reshape economic environment. In fine, both ideas and environment act and react upon each other and it through their mutual interaction that the growth and development of a nation takes place. Moreover, no economist can look at contemporary problems in a

detached way. He is bound to become involved in them. Thus modern economists are concerned with problems of growth, population, economic planning, monopoly,

unemployment etc, which their predecessors would have hardly felt interested in. While developing countries like India have one set of problems, the more developed countries have to face up to their issues. The Gandhian philosophy of non-violence and the

Gandhian ideology of decentralization have influenced the economic policies of the Government and are of great significance and value to the students of Economic in India. Ideas and environment are equally important and hence a close relationship

between History of Economic Thought and Economic History.

Scope of History of Economic Thought: The scope of History of Economic Thought is very wide. It includes the study of human ideas from the time man started formulating and expressing them down to the present times. It is the business of the research scholar to collect scattered ideas from ancient literature and put them in their proper sequence and then to evaluate them. This

provides a fascinating field for him though the task is, by no means, easy. The ideas have to be traced from customs, institutions and laws means, easy. The ideas have to

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be traced from customs, institutions and laws having a particular bearing on economic theory.

Alexander Gray has rightly pointed out that “old doctrines never die; they only fade away, with a strange power of recuperation in an appropriate environment. The dominant opinion of any age, even if it has a flavour peculiarly its own, is on analysis, fricassee of the thoughts of all the ages, and the latest exponent of orthodox and accepted doctrine may, to a later generation, appear to have added at most one further ingredient or one condiment before passing it on”.

History of Economic thought must also include a study of the various approaches adopted by scholars and philosophers from time to time in the study of the science of economics or in analysing economic phenomena. These approaches can be recounted here by way of illustration. They are (1) Chronological approach; (2) Conceptual approach; (3) Classical deduction approach; (4) Historical approach; (5) neo-classical approach; (6) Welfare approach; (7) institutional approach; and (8) Keynesian approach.

History of the development of economic thought can be divided into three distinct periods; (a) ancient, (b) medieval, and (c) modern. Though some writers like Gide and Rist have not considered it necessary to study the ancient medieval economic ideas and the contribution made by the materialists, it is largely a matter of treatment. The fact remains that the keen and impartial eye of largely a matter of treatment. The fact remains that the keen and impartial eye of the historian, attempting a history of economic thought, can hardly afford to overlook anything which us relevant to such a work. Nay, he must include in his history all such ideals born since the time man started recording his mind, to date.

Significance of the Study of History of Economic Thought: The significance of studying the History of Economic Thought lies in the benefits that accrue from it. The study of the subject gives one an insight into the evolution of economic theory, and the formulation of policies which controlled economic life, from the earliest times to the present day. Thoughts of every age in the context of their surroundings have governed individual actions and policies and are, therefore, important

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for us. The chief advantages of the study of History of Economic Thought have been very well summed up by the Professor Haney as under:

First, he says, such a study reveals that there has been ‘a certain unity’ in the thinking of man right from the earliest times to the present day. Thinking is the heritage of man. In every age, thoughts have emanated from the environmental influences.

Secondly, the study of the History of Economic Thought reveals that there has never been an age in which ideas have not developed. The presumption that middle Ages were dark ages leads one to think that no new ideas or philosophy were developed during this epoch.

Thirdly, such a study assists us in tracing the origin and the development of economics and in understanding its nature and scope and relationship with other sciences, Economics, being a science, is dynamic and without studying ancient thought we cannot correctly assess the developments that have taken place in its nature and scope.

Fourthly, Economics, being a social science, is closely related to other social sciences. As a member of society, man’s physical efforts in various fields are mainly directed towards earning his livelihood. While making these efforts his political, ethical, economic and other ideals get mixed up and all his activities appear to be economic. Economics is thus intimately connected with other disciplines in the group of social sciences.

Fifthly, the study of the History of Economic Thought, leads to a change in the outlook of the student. He no more remains dogmatic. He starts examining and assessing critically the practical value of each idea and theory in the context of his own times and conditions. The attitude of mind becomes impartial and he does not either condemn or uphold a concept with a prejudiced mind or a coloured vision.

In the sixth place, such a study provides the reader with a broad basis for comparison which proves to be of great value. His sentimentalism is brushed aside. Prof. Haney has said, “Standing at the highest point yet reached, after centuries of economic thought and looking back over the path of truth, strewn with fallacies and truisms thought it be, the students feels his judgment broadened, and well-balanced and reasonable conservatism, or a wise progressivism, may fill his mind”.

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A study of the History of Economic Thought also enables its reader in developing ‘a sort of objective point of view.’ He starts realising that economics is quite different from economists, that the two are separate entities altogether and that whereas Economics is a science, economists are only human beings. Economics is a science, a systematised body of doctrines “developed during the course of centuries, encircled by the view of different economists and gains confidence without caring for the personalities”. The study of the History of Economic Thought also reveals the differences in the points of view of various thinkers and shows how a particular point of view has been built. Differences in opinion and points of view are bound to occur owing to the differences in the basic philosophy of life and the method adopted by each thinker in studying a problem.

HEBREW, GREEK, PLATO AND ROMAN ECONOMIC THOUGHT

The Hebrew: The Hebrew was a nation of ancient civilization whose history dates back to 2500 B.C. The main source of their history and ideas is the writings of the Hebrew prophets. Their ideas contained in the rules of conduct and laws enunciated and formulated by the sacerdotal class. These injunctions or commands were the standard of all thought and action. The main theme of Hebrew education and the chief concern of the Hebrew government was the observance of these laws and commands. In fact, all their activities, including economic relationships, were strictly regulated by these rules of conduct. The code covered important economic problems, like agriculture, industry, usury, monopoly, adulteration, weights and measures, inheritance, property rights, taxation, poverty, labour and wages, etc. The Old Testament is the most important and original source of information regarding the economic thought of the Hebrews. From a description of the contemporary society in the Old Testament it appears that it had some of the characteristic features of a capitalist society.

The Hebrew prophets soon reacted to this by denunciating the greed and avarice of the new society. They preached against usury and land alienation and reiterated the

necessity for limiting the right to private property, but all in vain. Their mistake lay in not being able to visualize that the change was imminent, as a consequence of the

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changes in the modes of production. Their preaching, however, made a deep impact on the minds of men.

Characteristics of the Hebrew Economic Thought: Broadly speaking, the Hebrew economic thought had the following characteristic features:

(1) As the social life at that time did not have any of the modern complexities, the social philosophy resulting there from was over-simplified.

(2) Religion, ethics, law, economics, philosophy-all were inextricably bound together, but there was a predominance of religion and ethics

(3) Their everyday life was strictly regulated by the rules of conduct and laws formulated by the dominating class of priests to such an extent that the laws covered even such activities as the cleaning of teeth, funeral obligations, eating, trimming of hair and beard, etc. Many trades and activities which were primarily economic were thus

regulated by the religious hierarchy.

(4) One of the most striking characteristics of their economic thought was the conflict between economic stimuli and ethic-religious ideas. retarded economic stimuli and ethic-religious ideas. retarded economic progress. There were many factors which There were many factors which

“Their philosophy was characterized by such a lack of

individualism and of materialism, such a disapprobation of industry other than agriculture, such relative indifference towards wealth, and such a great degree of passivity and fatalism, that its dominance made any great industrial civilization impossible”.

(5) Another characteristic feature was the fixity of their ideas. “The general aim of social regulation was to maintain the social equilibrium, and here, as elsewhere among ancient peoples, static ideals dominated. This finds expression in the caste system and in the isolated national life”.

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(6) The Hebrews had a concept of society and social welfare but it lacked the necessary dynamism. It was the result of their idealistic philosophy, so passive in nature that it did not lead to active “Social planning” and “Industrial regimentation”.

Greek Economic Thought: During the days of Homer, Greece enjoyed complete economic self-sufficiency. A poem composed in the 7th century B.C. by Hasid, telling farmers the true principles of agricultural economy, reveals the nature of economic thinking as theoretic. When tribal bonds were broken, society was divided into classes, and came to be ruled by a landed aristocracy. Agricultural exports led to the impoverishment of the peasantry; and the interest of merchants and landowners clashed. The Greek economy was never treated as a separate subject. It was inextricably bound-up with political science and ethics.

Religion was part of the machinery and the mystery of the state. There was absence of a connected system of economic thought because the State was founded on slavery; and the work of craftsmen was regarded as incompatible with a life of virtue. The ordinary business of life, excepting agriculture, was despised. The economic ideas of ancient

Greeks are contained in the teachings of Greek philosophers – Plato and Aristotle; and in the writings of the contemporary historian-Xylophone and Epicurus”

Plato and Aristotle sought a unified science of society; their economic ideas were embedded in the institutional arrangements of the time.

Plato (427-347 B.C): Plato–the world-renowned Greek philosopher and pupil of Socrates, who had traveled in North Africa, Southern Italy and Sicily, was a teacher in the Athenian Academy. He

accepted patrimony only which was sufficient for his maintenance. His books are in the form of philosophical dialogues. Two of them-The Republic and The laws-are very

important from the economic point of view as they reveal his ideas about the origin of state, division of labour, etc.

Origin of State.

The organized city of Greece known as polis was equivalent to a

modern state. Plato attributed the origin of a city state to economic considerations. He stated in The Republic that a state arose, out of the needs of mankind; and as people had many wants, many persons were needed to supply them; and when helpers and partners lived together in one habitation, the body of inhabitants was termed a state.

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Regulation of Population. Plato based the conception of a city state on the economic wants human beings. The ideal size of a state, according to him, should be such as it can be conveniently administered and in which all citizens may know each other. Thus, it should neither be too big nor too small. A city state comprising 5,040 citizens was considered an ideal organization. But if the number showed a decreasing tendency,

prizes might be offered to encourage the growth of population, and if it rose beyond the proposed number, new colonies could be established.

Division of Society. The ideal city state which was to be ruled only by an intelligent and planned government (he was against democracy) should have classes. Among the ruling class were included philosophers whose virtue was wisdom, aristocrats who were the men of culture and high breed, and warriors whose virtue was courage. All these men enjoyed common ownership of property. Among the ruled class were included

menials, workers, agricultural labourers and craftsmen, their virtue being temperance, the right of property was denied to them. The main function of the ideal city state was to ensure happiness to every one which could be possible only with virtue and justice.

Property and Governance.

For each class of people Plato had suggested ideal

property arrangements. Only farmers and artisans were allowed to work to profit; and accumulate property. The rulers and auxiliaries could not enjoy property rights. He

realized that the city was divided into two parts-city of the poor and city of the richalways at war with each other.

Reciprocal Needs: According to Plato, men have many wants; and no man is selfsufficient. They take helpers, and exchange with one another. The simplest example is that of the production and exchange of food and other means of physical maintenance. There is some sort of satisfaction of needs and some exchange of services in a society.

Division of Labour. Plato’s division of labour or his concept of specialization and exchange depended upon two things; diversities of natures and aptitudes. He wrote

that all things were produced more plentifully and easily and of a better quality when one man did one thing which was natural to him; and did it at the right time, and left other things. It simply carries the idea of division of trades which was in accordance

with human needs.

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Slavery and Communism.

Plato regarded slavery as a permanent factor in the

civilization of mankind. In his book The Laws he pointed out the best kind of slaves and how to treat them. He held the view that the foreigners who were defeated in war, and were taken prisoner, should b e made slaves. But their life was not that of hardship.

Aristotle (322B.C): Aristotle–the son of the physician to king Amyntos II and pupil of Plato was the founder of a school popularly known as “peripatetic” because he taught his pupils while walking. He was the first analytical economist and a philosopher of extraordinary brilliance who contributed extensively to ethics, economics and politics. His career began at the end of the creative period in Greek thought, and after his death it was 2,000 years before the world produced any philosopher who could be regarded as approximately his equal. Although he did not write a separate book on economics, yet his economic ideas presented in the dialogue form were based on scientific precision; and exercised profound influence on the development of economic thought.

Origin of State. Aristotle regarded man as a political animal and state as the creation of nature which owed its origin to the natural instinct of human beings to live with their fellowmen to lead a good life. According to him, the state was a natural organism. He viewed economic problems from a political state was a natural organism. economic problems from a political standpoint. He viewed

He did not agree on a community He held that

property as it would lead to disputes; but advocated private property.

state should be the custodian of the highest morals, should develop the highest qualities of men, and should have a constitution which should aim at the maximization of economic welfare.

Natural Economy and Chrematistics. Aristotle divided economy into two parts; (a) natural economy or household management and (b) chrematistics or artificial or wealthgetting economy.

Money.

Ideas about money are contained in both of his books-The Ethics and The

Politics. His treatment of money is the best part of his economic thought. He said that money came to be introduced to facilitate commercial dealings.

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Value and Exchange. Aristotle clearly distinguished between value-in-use and valuein-exchange which were known as subjective value and objective value respectively. Condemning exchange and giving the example of shoes he wrote that a shoe was used for wear. And for exchange; both were the uses of the shoe. He who gave shoe in

exchange for money or food to him, who wanted one, did indeed use the shoe as a shoe, but that was not its proper or primary purpose, for a shoe was not made to be an object of barter. The same might be said of all possessions; retail trade was not natural part of the art of getting wealth.

Usury.

For him usury was the most nated sort of things which made a gain out of

money itself, and not from the natural objects of it. Moreover, money was intended to be used in exchange but not to increase at interest.

Property. In the opinion of Aristotle, property was part of a household and the art of acquiring property was part of the art of managing a household. Property did not

include slaves. In contrast with Plato, he criticized communism; and favoured private property because he felt that when every one had a distinct interest, none would complain against others. In addition, more progress would be achieved as everyone

would be attending to his own business.

Finance.

Aristotle recognized the art of finance which developed as a natural

consequence along with the introduction of money. In the natural sense, finance was regarded as part of domestic economy but unnatural finance, according to him, produced money by means of exchange.

Roman Economic Thought: Romans were the men of action. They built institutions that profoundly influenced the development of law and politics. They approached the economic problems of the day from the political standpoint; thus their specific contribution to economic thought is very little. Among Roman philosophers and writers the names of the following may chiefly be mentioned. (1) Marcus Tullius Cicero(106-43 B.C) (2) Lucius Annaeus Seneca (4 B.C-65 A.D.) (3) Pliny the Elder (23-79 A.D.)

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(4) Marcus Porcus Cato (234-149 B.C) (5) Marcus Terentius Varro (116-27 B.C.) (6) Lucius Junius Moderatus Columella. Cicero commended the traditional Roman virtue of public service. Though he did not

posses original ideas, his statement became incomparably the most important single literary means for spreading them throughout Western Europe. He said that though all mean were not equal in learning, yet in the possession of reason, in their psychological make-up and in their attitude towards good or bad they were alike. To him, equality was a moral requirement and state, a moral community or corporate body which existed to supply its meanless the advantage of mutual aid and just government. consequences follow from these observations; (a) Since State is the common property of people, it’s authority arises from their collective power. (b) Political power when exercised rightfully and lawfully becomes the corporate power of people. (c) State is always subject to the law of God or to moral or natural law. Let us now briefly discuss the ideas of Roman writers on economic questions. Three

Agriculture.

Cato, Verro, Pliny, Columella and Paladius praised agriculture and were

chiefly interested in the improvement of agricultural technique.

Value. According to Pedius, the prices of things w2ere determined neither with reference to affection nor to their utility to single individuals, but had a common validity. They did not develop their ideas on value. According to them, price was determined by the forces of demand and supply. In due course of time the concept of just price developed which showed some regard for ethical considerations.

Money and Interest. Formerly, the barter system of economy was prevalent; but about the middle of the fourth century B.C. Bimetallism (coins of bronze and silver) was adopted in Rome. The active circulation of coins created financial crisis also. Pliny the Elder favoured barter because to him, gold was the cause of the ruin of mankind.

Commercial Regulations. The Roman State interfered with economic matters and commercial regulations in difficult times.

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Division of Labour. In his writings Cicero laid emphasis of division of labour in economic activities as it conferred several advantages. Hutcheson has acknowledged his debt to Cicero on this topic. In the same way, David Hume referred to Roman writers in his discussion of division of labour.

ECONOMIC THOUGHT IN ANCIENT INDIA

Introduction: India has a glorious past and ideas on economic subjects, even in the fourth century B.C. were as comprehensive as they are today in Anglo-Saxon countries or in any part to the world. Not only that, they are quite akin to modern thinking on the subject. It is wrong to say that the ancient Indian economic ideas “have but a slight interest from the point of view of modern science. The can all be reduced to a few moral precepts”. Our ancient literature, the Vedas, the Upanishads, the Epics, all contain as ocean of economic ideas, the depth of which is fathomless. True, that economics as an

intellectual discipline did not enjoy independent existence till recently. It is also a fact that ancient economic ideas were overshadowed by religion, philosophy and literature, but how about the ideas of ancient Greek and Roman philosophers? The same is true about India. If we look at things impartially and without any coloured vision, we should arrive at the conclusion that ideas develop with the progress of civilization, which is largely the product of physical and geographical conditions of a country. River valleys, mountains, climate, flora and fauna and mineral wealth have always been a source of inspiration to the development of art and literature, mythology and religion and the economic life of the people. The Himalayas and the rivers Ganges and Yamuna have not only moulded our political and economic life, but have also been a source of inspiration for creative art, literature, philosophy and religion of the people of India. Innumerable instances can be cited from the Vedic and the ancient literature in support of this statement.

Development of Indian Economic Thought: The history of the development of economic thought in Indian can be traced back to the times since man started recording his ideas. According to Indian philosophy, history is defined as a narrative of the past which exemplifies the fulfillment of four ideals of life: Dharma (the doctrine of duty); Artha (material prosperity); Kama (Worldly Pleasures);

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and Moksha (Salvation).

These ideals have been the regulator of human life and

activities in this country since times immemorial. To the ancient seers and sages in India, economics, like the modern thinkers, was a social science concerning everyday life and pursuits, which would be impossible without association, organization and concerted action to achieve predetermined objectives. The ancient writers believed that all social sciences were interdependent in their theoretical as well as practical aspects. Shukracharaya, a legendary sociologist held that “any action which can be described by words (or can be read) is Vidya or science and action, which even a dumb person can achieve, is called a Kala or an art”. The ancient concepts underwent certain changes since then. The various invasions of the Mughals, the Mongols, and the Turks, the British rule, the influence and domination of foreign languages, have been responsible for the change in the meanings of the technical terms. Moreover, the foreign invasions and the ravages of time, the natural calamities like floods and earthquakes, destroyed to a very great extent the ancient literature.

Economic Thought in Ancient India: A proper appreciation of the ancient economic thought in India is full of serious difficulties. And the reasons are not far to seek. Our ancient past is shrouded in the haze of legend, as the story of our people was seldom recorded in black and white and the principal personages of our history were trained in the virtues of modesty and steeped in the ideals of truthfulness and godliness. But there as scientific treatises of hoary antiquity which cover most of the aspects of the modern science of economics, which were seen at work in the daily life on a grand scale by contemporary foreign observes. It is on the basis of the remnants of ancient literature and on the basis of the writings of the foreign travelers who visited India during those days that the ideas of the ancient thinkers on various subjects can be known. To the ancient seers and sages of India, like the modern thinkers, economics was a social science, concerning man and his pursuits in every day life, which would be impossible without association, organization and cooperative action. The interdependence of all the social sciences in their theoretical as well as applied form was an outstanding characteristic of our ancient thinkers.

Kautilya’s View: Kautilya’s Arthashastra is the chief source of information. Kautilya’s name was Vishnu Gupta. He was a learned Brahmin. He is known by the name of Kautilya because he was an expert in diplomacy and political strategy. He was the chief minister of Chandra

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Gupta Maurya. He was responsible for getting Chandra Gupta the kingdom of Nand, after destroying its king. Kautilya has given vivid description of the administrative procedures, of the duties of kings, ministers and government officers, in his book. His Arthashastra is based on earlier treaties and is divided into fifteen chapters covering about 430 pages. He has acknowledged his debt to Shukracharya and Brahaspti. He has regarded economic as a continuous process. It covers almost every aspect of the theory and practice of economics. It also deals with the government of town and villages, law courts, rights of women, maintenance of the old and helpless, marriage and divorce, public finance, maintenance of army and navy, diplomacy, agriculture, spinning and weaving and a number of other subjects. His book contains ample ideas on a welfare state.

The Ideas of Kautilya: (a) Nature and Purpose of Material Wealth. The term Artha (wealth) occupied an important place as one of the Purusharthas, in the system of economic thought during the Vedic Period. The concept of Varta (national economy) as understood by the Vedic seers and sages was the Artha or the material wealth or prosperity was essential for the stability and maintenance of the social structure and organization which provide means and opportunities to every individual for leading a decent life, ensuring adequate selfexpression, self-realisation and salvation. The concept of wealth was, thus necessarily correlated with that of want and welfare. Wealth include, during those days, cattle, especially cows and horses. In ancient India, individuals were free to earn and accumulate wealth but only to the extent it was necessary for the satisfaction of one’s wants and those of the members of one’s family. (b) Varta. The term Varta which means the science of national economy, has been most commonly used by the ancient thinkers. Kautilya include agriculture, animal husbandry and trade in Varta. (c) Agriculture and Animal Husbandry. Agriculture and animal husbandry formed important components of Varta. These were regarded as the basic sources of new wealth. (d) Dignity of Labour. According to the Vedas, a man should lead an active life of hard labour for 100 years. The ancient sages thus appreciated the dignity of labour. Kautilya also recognized the ‘ashram vyavastha’ of the more ancient thinkers. He did not recommend slave labour. Kautilya laid down a code of discipline for labour in which he prescribed penalty for those who refused to work after receiving wages. In certain cases,

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labourers also were entitled to leave. The worker and the employer may also enter into a written contract. (e) Trade. The ancient thinkers approved of trade, whether internal or foreign, only when a surplus, after meeting reasonable domestic or local needs was left over. Broadly speaking, the exchange of commodities of internal trade was considered superfluous. (f) Public Finance. Taxation was one of the most important sources of revenue of the state. It was known as ‘Raj kar’. The rate of tax was determined in accordance with the dictates of Hindu Religion. According to kautilya, the tax receipts can be dividied into three parts: (a) income earned through taxes on goods produced within a country; (b) income earned through taxes on good produced in the capital and (c) through taxes on imports and exports.

The main principles of taxation were, thus as follows: (i) a tax should be levied once a year and should not prove a burden to the taxpayer; (ii) rich persons should be taxed according to their ability to pay or richness. The burden should be so distributed that the taxpayer is not weakened and no harm is done to the state. Since wealthy people are to contribute more to the state, they should be given a prominent place in the society. Kautilya’s ideas are more or less confined to the organization of central finance. He did not touch the problems of local finance.

Kautilya included the following items in public expenditure; (i) national defence; (ii) public administration; (iii) salaries of the ministers and expenditures on government departments; (iv) expenditure on government storehouses, etc; (v) expenditure incurred on the maintenance of national storehouse and granaries; (vi) expenditure incurred on the maintenance of armies; (vii) expenditure incurred on the acquisition of valuable gems, stones and ornaments. Whatever was left was deposited to the war chest and the treasury. (g) Population. A large population was not a cause of worry to the ancient Indian thinkers. It was considered as source of strength. According to the Vedas, ten sons to a newly married couple were considered to be just. It was believed that population could not grow beyond a reasonable limit owing to the high death rate due to constant wars between small states and loss of life due to the inadequate medical facilities. Kautilya even recommended that the kind should establish colonies for facilitating immigration. (h) Slavery. In ancient India a slave was a member of the family and was not required to do menial jobs. He used to be a hereditary domestic servant without any rights of

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accumulation of wealth and private property. He was, in any case, better than a hired worker. (i) Welfare State. The ancient Indian thinkers had a very clear concept of welfare state. Wages were determined on the basis of equality and justice. There was no exploitation of labour by the employers or of the cultivators by the landlords and the capitalists. Manu and Kautilya were against high rates of interest. Manu has given instructions in Dharma Shastra for the regulation of the rates of interest. He even forbade the charging of compound interest. According to Kautilya profits are the rewards of purely entrepreneurial function. Kautilya’s concept of state is founded on industrial edifice. According to him, there are three guiding principles for the state: first, the state should undertake those industries which help directly in making the nation self-sufficient and self-reliant, e.g., gold, silver, diamonds and iron and other to farming, spinning, and weaving, livestock farming, arts and crafts, etc., should be the state should see that the activities relating to production, distribution, and consumption are carried out efficiently and in accordance with the rules framed by it. It, thus, implies a perfect domination of the state on the individuals but with the sole object of augmenting their welfare. (j) Social Security. During the time of Kautilya, the system of social security was not so elaborate as it is found today. (k) Interest. Although the ancient thinkers approved of the charging of interest, they were not in favour of high rates of interest. Kautilya proposed regulation of the rate interest. (l) Price Control. The main object of price control was to protect the consumers against the malpractices of the shrewd and dishonest traders. (m) Socio-Economic Institutions. As stated earlier, the socio economic structure in ancient India was based on the dictates of religion. The laws of religion governed every walk of life, family and social relations, economic activities and spiritual life. A study of social and economic relationships is a study of Hindu religion which consists in the analysis of state and ‘varna ashram’. Accordingly, the earth was common property of all. (n) Town Planning. The science of town planning was quite advanced in ancient India, especially during the times of Mauryan emperors. The villages were grouped together from the point of view of economic necessities and for national defence. Town planning included the reorientation of main streets, the subdivision of the city area, and the widening of the main streets. The capital was established after careful planning.

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Elaborate rules were laid down for prevention of the fire and maintenance of sanitary arrangements.

Economic Ideas of Valluvar: No account of the economic thought in ancient India would be complete without a reference to the economic ideas of Valluvar. Valluvar was a sage and seer, a poet and a scholar whose book Thirukkural is one of the most important works of the Sangam era. It is an undying classic and a work of ethics par excellence. It deals with the fundamentals of life. The exact period during which Valluvar lived is not certain but it is believed that it was in the first or the second century A.D. that he produced the Kural.

Valluvar’s teachings were an appeal to the people at large. He was not merely a scholar but a prophet exhorting his countrymen to a course of action which he considered the most important for a prosperous life. In the tradition of the Sangam Age he chose the couplet verse as the medium of communication.

Thus, the four cardinal principles on which an orderly and a prosperous society’s superstructure should be built, according to Valluvar are: (i) faith in God; (ii) economic resources; (iii) spiritual leadership; and (iv) observance of the moral law. He has not given any order of priority and, therefore, he considers them as the four wheels of an automobile. These principles are the key to the understanding of the rest of the Kural, comprising 129 chapters and in all 1330 Kural stanzas.

The Concept of an Economic Society:

His economic ideas are mostly found in the second part of the ‘Kural’ which he names as the Porutpal, i.e., the part dealing with wealth for Valluvar Porutpal was the same as Arthashastra was for Kautilya. Porutpal literally means ‘things, substances, objectives, values, wealth, etc., i.e., all material things, all tangible objects, that can be acquired, enjoyed and lost and which a man requires in daily life for maintaining his family and for the fulfilling of his life’s obligations’.

Poverty and Begging as Social Curses:

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Valluvar condemns the evils of poverty. In ten graphic stanzas he spells out the horrors of poverty; ‘nothing is more dreadfully painful than poverty’; ‘gripping poverty robs a man of the lofty nobility of his descent and the golden eloquence of his tongue’, ‘cursed poverty is a nest of evils’ and so on. Valluvar was totally against begging for, he says: “It is the height of folly to redress the ills of poverty by begging”; again “it is most heinous to beg for a bucketful of water even to quench the feverish thirst of a sinking cow”. But, aware as he was of the realities of life and knowing that life’s circumstances force this indignity on some unfortunate few.

Accumulation of Wealth: After condemning poverty and begging as the greatest social curses, Valluvar deals with the importance of accumulation of wealth.

The Spirit of Industry: He prescribes certain moral and spiritual qualities for the citizens of an economic society which is free from poverty, begging and hoarding and which encourages accumulation, consumption and better distribution of wealth.

Importance of Agriculture: Such is the economic philosophy of Valluvar. He did not work out any economic system as such. He was general in his approach and treatment of the constituents of an ideal economic society.

Balanced Spending: As already stated, he was neither in favour of hoarding nor an admirer of extravagance. To quote him, “give; always give; but let your giving be governed by your resources. Be thrifty, but not to verge of miserliness”; again, “let your charity be proportionate to you wealth. This is the way to preserve it”; and further, “behold the man who lavishes his wealth beyond his resources; he appears to be prosperous, but he only treads the downward path to destruction”. He thus believed in balanced spending.

Constituents of an Economic Society: Like modern economists he does not classify factors of production into land, labour and capital.

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Public Finance: In the fiscal sphere, Valluvar assigned four essential functions to the State, namely, the creation of revenues, collection of revenues, management of revenues and public expenditure. Valluvar was not in favour of any undue compulsion in taxation. To quote his famous dictum, “the king who extorts money at the point of the bayonet is like a highwayman, who waylays the benighted traveler with his threatening cry – “stand and deliver”. These are his views on taxation. Customs were the next and the tribute paid by vanquish enemies was the third source of revenue.

Welfare State: By what he said, it can be inferred that he was an advocate of a welfare state, and he wanted the king to be a sound administrator. Next to sound administration, he looked upon education as basic to progressive economy. In other words, he considered knowledge as an essential factor of production; for knowledge brings in man the wisdom to earn and spend wealth; a force for social leveling up, and a driving force for progress.

The economic society of Valluvar’s choice is to be based on “a vigilant social consciousness, a code of basic moral values and sound welfare principles”. His was not the concept of a modern welfare state, because Valluvar seems to have relied more on individual action than on a state action; for it is the ideas and aspirations, sanction and participation of the individual that ultimately count for the emergence and success of corporate state action.

Comparison between the two (Kautilya and Valluvar’s) views: Some have tried to draw a parallel between the economic ideas of Kautilya and those of Valluvar. While some hold that Kural borrowed some of its economic ideas from Arthashastra, some others say that Kautilya carried with him some of Valluvar’s economic ideas and embodied them in the Arthashastra. There are still others who hold that there was no influence of one upon the other. Firstly, it has been seriously questioned if Kautilya lived in the 4th century B.C. and arguments have been advanced to show that Kautilya belonged to a much later date or to the 4th century A.D. and not to the 4th century B.C. Secondly, there is no resemblance whatsoever between the economic ideas of the two; (i) Valluvar attached primary importance to agriculture and agriculturists while Kautilya doe not. (ii) Kautilya lays down a long list of taxes for raising revenue which Valluvar has not. Kautilya even suggests measures by which the

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maximum revenue can be collected from land through fear or persuasion; (iii) The economic society of Kautilya was based on castes and this caste system is virtually absent in the Kural; (iv) The economic society of the Kural is based on ethical principles which are totally missing in the Arthashastra; (v) While Valluvar believed in taxation by consent, Kautilya believed in taxation by fear and intimidation; (vi) Kautilya did not even hesitate to exploit superstition, credulity, religious beliefs, innocence of the subjects and even drinking and prostitution for enriching the coffers of the State, which were totally unacceptable to Valluvar.

We may thus conclude that Valluvar was a great sage and a poet. He was neither an economic theorist nor a political thinker. He was essentially a philosopher who tried to synthesise the principles of ethics, economic and politics and in this respect he stands far away from the ancient sages and the modern economists.

MEDIEVAL ECONOMICS THOUGHT

The middle ages cover a vast span of about one thousand years which is divided into two parts – (1) from 476 to the 11th century known as the dark ages in which static or stagnant economy prevailed and (2) from the 12th to the 15th century – the period which commercial and economic progress.

Feudalism. The social structure of the medieval period was raised on the foundation of feudalism which appeared in the Western Europe in the course of the 9th century which divided the entire society into two classes – those of feudal lords and tenants called serfs. Nobles or feudal lords owned large estates and the dependence of people on them made them small sovereigns. The king was not in a position to control them, hence for practical purposes they had become independent rulers; and had made their own laws. The landless and the poor came under their patronage; and they granted their requests for tilling the soil.

The relationship between feudal lords and serfs (often known as fiefs) was of a permanent nature. The latter had to pay taxes mostly in kind to the former for tilling their land, or else to pay them in the form of manual labour on their fields. Feudal lords in turn granted them hereditary right of tillage; ensured protection against probable attack barbarians and guaranteed justice to them.

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Another feature of feudal economy was the development of towns and cities (most of them were walled for protection) which played an important role in stimulating commercial activities. Great became strong trading centres during the 11th and 12th centuries. It must be remembered in this connection that crusades or holy wars greatly contributed to the development of communications which considerably helped in promoting trade and commerce, and industries opening new markets some of which came to attain international importance, but the most important feature of feudal economy was the predominance of agriculture.

Emergence of Capitalism. During this period, barter economy was disrupted; and money economy was firmly established which gave rise to the problem of modern capitalism. Production began to be carried on in an organized way; and the wage system came to be adopted.

Influence of Religion. The Roman Catholic Church was a cosmopolitan organization. It had accumulated a vast landed properly, was the super feudal lord; and in this capacity it promoted the interests of the society of the day. Its influence on the medieval economic life was very great because it taught to people the virtues of industry, thrift, fidelity and obedience. Christianity taught brotherhood and natural equality; condemned slavery and promoted the idea of natural community of property. It, moreover, taught dignity of labour and the duty of helping the poor. It also emphasized the personality of man.

ST. THOMAS AQUINAS (1225 – 1274)

St. Thomas Aquinas (1225 – 1274 A.D.) was the most renowned scholastic philosopher. Having been born in Italy, he got his early education in the Benediction monastery of Monte Cassino. St. Thomas Aquinas continued his studies at Paris, and Cologne, where he became a pupil of Albert the Great. After the completion of his academic apprenticeship, he taught theology and philosophy at Cologne, Paris, Bologna, Rome, and Naples, changing his residence frequently. He was an extensive writer and wrote 60 books. His best known work is the Summa Theologiae which is a systematic summary of the ideas of the time.

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His Economic Views or Scholasticism. His views were, therefore, an admixture of the teachings of the Bible and the philosophy of Aristotle. The views of St. Aquinas in particular and the scholastic writers in general, can be briefly stated as follows:

1. Individualism. Schoolmen in general despised individualism and scorned the idea of laying emphasis on human personality as the basis for economic decisions. “Thus, on the one hand, it tended to limit that reference to individual choices which was to become the basis of economic science; while, on the other hand, it kept alive and emphasized the concept of social uniformities and the dominance of abstract “laws”, which later contributed to the idea of that science”.

2. Property. St. Aquinas did not uphold the exclusive and unrestricted rights in private properly. He totally followed Aristotle in this regard. According to Aristotle there were two aspects of private property, viz., firstly the power of acquiring and administering it and secondly, the manner of using it. The power of acquiring the property confers the rights on the individuals. Private property leads to an increase in the production of wealth. It is natural and necessary for the peace of the society.

3. Trade. St. Aquinas regarded trade neither good nor natural. It was unnatural and graceless. But, he recognized that it was an evil which could not be dispensed with. It could be justified only, “if the merchant sought to maintain his household and when the object of trade was to benefit the country”. According to him, trade could be permitted if goods were exchanged at a price which was ‘just’ both to the seller and the buyer, i.e., the commodity given and the commodity received were of equal value. St. Aquinas in this respect appeared to those of the earlier thinkers.

4. Just Price. The most important part of the economic thought of the Schoolmen, especially of St. Aquinas is the doctrine of ‘justum pretium’. The doctrine was based upon their concept of value. Value was considered as an objective quality inherent in every commodity. Its measure was dependent upon a process of estimation of the cost of production which covered labour. The concept of ‘Just Price’, something like value was absolute and was associated with the common usefulness of the commodity.

5. Usury and Money-lending. Money-lending, as a means of gaining wealth was considered by the Church Fathers as the most degraded act. Similarly, the Hebrews has

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also prohibited taking of interest. With the growth of money economy and with expanding opportunities for profitable investment of money, the concept of ‘usury’ like that of value also underwent changes. The general prohibition of interest-taking was now not considered necessary.

6. Division of Labour. Division to labour was accepted as useful. The Schoolmen did not agree with the ignobility of certain forms of labour and the disreputability of other occupations than agriculture, as held by the Greeks.

7. Economic Functions of the State. The state was likened to a private economy and the office of the ruler was regarded as private property. The state was perform the following functions: “The maintenance of population and provision for the poor, the establishment of safe and free roads… a system of weights and measures and a special coinage”. The establishment of an exact and unchanging system of coinage was the most important duty of the ruler. Aquinas believed that by money the king could purchase food for his subjects, in times of war. The king, thus, possessed the right to control and regulate the monetary system and to make laws for the prevention of counterfeiting and clipping of coins. The regulation of currency was thought necessary, because a slight change in its quantity might affect its price.

Mercantilism: The term mercantilism used sporadically by the French Physiocrats was introduced in Economics by Adam Smith who devoted one-fourth of his famous treatise – The Wealth of Nations to a scathing criticism of what he termed the commercial or mercantile system. It is a misleading term if it is taken to mean that at any time of the history of economic thought there exist a group of writers who scientifically developed a body of mercantilist doctrines. Different names have been given to these economic ideas, namely, mercantile system, Colobertism, Commercial system, restrictive system and mercantilism. As they do not properly form a system: and do not belong to any one man or fall under one central economic idea, the term mercantilism is preferable.

According to Cole, “mercantilism is a term which may be applied to those theories, policies and practices, arising from the conditions of the time, by which the national State, acting in the economic sphere, sought to increase its own power, wealth and prosperity”. As understood by Heimann, it was “the ideological justification of

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commercial

capitalism”.

In

the

opinion

of

Professor

Lekachman,

in

its

glory

“mercantilism was a battle against hampering medieval thought and practice”.

Mercantilism prevailed not only in France, England and Italy; but was also prevalent in countries like Russia, Spain and Scotland. It adapted itself to the changing

circumstances of the time; and showed wide variations in accordance with local conditions. So far as the period of mercantilism is concerned, different writers have different views. Some writer like Alexander Gray hold that the mercantilist ideas in crude from began to appear about the end of the 14th or the beginning of the 15th century; and continued in spite of variations and modifications until the second half of the 18th century. But others like Cannan claim that mercantilism proper did not appear until the 17th century, influenced as it was by the development of early industrial capitalism which was interested in the promotion of export trade.

Factors Shaping Mercantilism:

(a) Cultural and Religious Factors. There were two sets of factors – cultural and religious, and political and economic that shaped mercantilism, the first being intangible. About the beginning of the 16th century religious and intellectual awakening among the European masses was very great. Reformation (associated with the name of Erasmus) and Protestantism (associated with the name of Martin Luther) spread the ideas of individualism and personal freedom, and thus went a long way in developing property and contract rights so essential to the growth of commerce and free exchange.

Renaissance and Humanism – (the movement of new light and learning) played a more significant part than protestanism. The medieval theology laid emphasis on the happiness in Heaven which would compensate the miserable existence of human beings on this Earth. A strong reaction was provided by the new light against this medievalism. People began to disbelieve the promised pleasures of the other world; and laid emphasis on the achievement of real happiness through economic activity on this Earth.

(b) Economic and Political Factors. Economic and political factors that stimulated mercantilist thought were immediate factor – i.e., developments that took place towards the end of the 15th century. These included the downfall of feudalism, lack of State

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organization, rise of free labour class, competition and development of exchange economy.

The development of international trade found expression in the discovery of new islands and countries and colonisation. The discover of America, that of round-the-Cape Route to India and the search for Eldorado – the island full of gold and silver, and other countries gave enormous potentialities for capturing foreign markets. The importance of money can be realized in another way, apart from its significance in exchange economy.

General Outline of Mercantilist Theories:

Foreign Trade. It occupied the first place in the mercantilist system. Mercantilists always wanted a favourable balance of trade for their countries. There were two things in which a country could become strong and rich: either it possessed gold and silver mines or engaged in trade. But all countries did not possess gold and silver mines. Therefore, such countries as England, France, etc., could amass bullion by exporting the maximum of manufactured articles and importing the minimum of the most essential commodities. This thought encouraged the adoption of certain policies relating to the development of allied industries, organization of agriculture, etc. Industries like shipping and fishing enjoyed priority over others as they helped considerably the foreign trade of the country. Agriculture was to be organized so that the production of food crops and tobacco might be increased; and their imports curtailed. In a mercantilist State the least importance was given to the development of internal trade.

Importance of Money. “Wealth consists in money or in gold and silver” was the core of the mercantilist theory. In a mercantilist State every possible effort was to be made for increasing the amount of treasure. Two important slogans were raised at the time: “More gold, more wealth, more power”’ and “the life of commerce and trade is money”. Mercantilism had a tight hold on money and precious metals. These days our wealth depends upon the availability of material goods and diverse services which maximize human welfare. Transition to a definite economy had changed the economic life of mercantilist States.

Size of Population. One of the cardinal features of mercantilism was not to have a large population but to have a numerous population for two purposes – war, and increase in production. “Cheap and abundant labour was necessary to enable home

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productions to compete successfully with those of foreign countries hence the laws and regulations encouraging matrimony and parent-hood”. According to Davenant, people were the real strength of a community; a dense population made inventions. It also developed industries which brought riches to the nation.

Factors of Production – Mercantilists recognized two factors of production namely land and labour. Petty’s famous dictum is repeated here – “Labour is the father, and active principle of wealth, as lands is the mother”. According to Josiah Child, land and trade went together. It clearly shows that for the development of trade the factor of labour was urgently required. They laid emphasis on the cultivation of agricultural waste land so that food production might increase, the country might become self-sufficient in foodstuffs and their imports might be curtailed.

Interest. So far as the ideas about interest or usury are concerned, unanimity did not exist among mercantilist writers. Thomas Mun justified the charging of interest on the ground that the money of widows, orphans and others was advantageously employed in trade; and that borrowers earned large profits. In 1668, Thomas Culpeper suggested the establishment of lower rates of interest: and his son bitterly criticized the institution of usury. Josiah Child also suggested low rates of interest. In his opinion high rates of interest made money scarce. Devenant was against those who accepted interest. He wrote in this connection – “The usurers who are the true drones of a common wealth living upon the honey without the labour, should be taxed”.

Commercial Regulations. Mercantilists believed that commercial regulations were essential for maximizing the social welfare and regulating the economic life of the community. These were passed to restrict the imports of food materials, but noregulations applied to the imports of raw materials because these were in the interests of the industrial development of the country. One of the regulations required colonies not to export any commodity direct to foreign countries. The parent country must receive all surpluses which could be re-exported from there. This actively increased the importance of a mercantilist state as centre of entrepot trade. The use of credit instrument was encouraged by the government and banking was to be developed for the promotion of trade and commerce. A legal measure provided for lowering the rate of interest so that business activities might be accelerated. The Mercantilist State undertook to subsidies export industries, fishing and shipping which would secure a favourable balance of trade; and bullion would not be exported.

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Value. Formerly, writers used to think that value was inherent in commodities, and depended upon human needs. Gradually the medieval idea of just price was several from actual market value. Value came to be regarded as an extrinsic market phenomenon which depended upon exchange. The Dutch scholar – Hugo Grotius and the Germna Historian – Samuel Pufendorf made needs and desires an important element in the determination of value.

NEO-MERCANTILISM

There is a big gulf of difference between mercantilism and neo-mercantilism of the present century. During period of the worldwide trade depression (1929 – 34) and the post-war era countries like Great Britain, U.S.A. and France followed typical mercantilist devices for tiding over their financial difficulties. These related to tariff restrictions, grant of bounties to producers, maintenance of god stocks, currency debasements, etc. Economics was an important instrumentality of mercantilists for serving the ends of national economies; hence their preponderating emphasis on economic controls. These days also, economic guides the national interests of various countries. Some have adopted economic planning to maximize human welfare which old mercantilists had never conceived of. Although William Petty and German mercantilists laid emphasis on statistics, yet statistical control over economic policies was very difficult as the organizations for the collection and interpretations of statistics did not exist. In modern times, statistics occupies an important place in trade and commerce. Every government maintains a fully developed statistical organization. Thus, mercantilist’s practices in the present century depend upon planning scientific organization and protection; and are guided by the theory of social benefits.

PHYSIOCRACY The system of economic thought which developed in France about the middle of the 18th century is known as physicoratie or physiocracy – the term which was first used by the French writer – Dupont de Nemours in 1768. Derived from a Greek word, it signifies the rule of Nature. Recently, it has been suggested by Norman J.Ware that physiocracy was a rationalization of certain specific political aims. In fact, it was a rationalization of medieval economic life: it aimed at recreating a better society and maintaining its equilibrium.
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Physiocrats preferred to call themselves “Economists”. They believed that there was a natural order which must be followed in order to increase the material happiness of mankind. They sought to minimize regulator control and maximize economic freedom. They were “the first to gasp the conception of a unified science of society”.

The leading physiocrats whose life and works will be dealt with later, were associated with a school of philosophers who held the view that all things were part of an interconnected system, proceeding from comprehension. These philosophers believed in some supernatural power – Nature – to which they always appealed for bringing the gulf that existed between their ideals and materialism.

Factors Giving Rise to Physiocracy:

(1) Extravagant Court Life. During the reigns of Louis XV and XVI the court life was degenerate and extravagant. “I am the State” was the royal maxim. Owing to the luxurious life of Kings, the State treasury had become empty. The rural population which produced revenues stood in the service of a few upper class men. The trading community was serving them like grooms and lackeys. France had taken heavy loans. Another reason for the week financial position of the country was the continuity of wars. The 72-year reign of Louis XIV and 59-year reign of Louis XV were marked with the monotonous regularity of wars. Luxury and wars contributed to her insolvency.

(2) Heavy Taxation. During the period of mercantilism, trade and commerce were developed at the cost of agriculture. Whereas agricultural land belonging to the religious class people and nobles was exempt from taxes, that of cultivators was heavily taxed. In addition to paying a large portion of produce to land-owners and taxes on the remaining produce, cultivators had to pay some duties which restricted the home and international markets for them.

(3) Environment. In those days there were no enclosures in France, and the great majority of small peasant proprietors, in order to supplement their slender incomes, used to hire themselves as daily labourers in rural industries. Nobles and clergymen who often owned more than 40 percent land were absentee landlords. In the majority of cases, land was cultivated by metayers (share croppers) to whom landlords advanced

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seed and livestock: and got one half of the harvest. In some cases, nobles leased out heir land to the farmers who possessed sufficient capital, and whose method of cultivation was superior to that metayers.

(4) Reaction against Mercantilist Policies. Mercantilism which laid great emphasis on the development of trade, had outlived its usefulness. In England, an agricultural revolution was taking place with large-scale farming they advantages of which were brought to the knowledge of the French by transitional writers some of whom had been to England, important among the m being Gournay, Mirabeau ad Montesquieu. The works of several England writers were translated into French which provided to French thinkers and leaders, an opportunity of having the knowledge of the economic prosperity of Great Britain which depended, to a considerable extent, upon agricultural progress. Thus the prestige of mercantilism was further shaken, turning the thoughts of people towards the increasing importance of agriculture.

(5) Transformation of Society. Another potent factor that led to the rise of physiocracy was the subjective force working for transformation. The French thought, too, had begun to break away from the “Shackles of Servile credulity”. Political writers also began to lay stress upon rational laws. The development of natural sciences and the application of their methods to social and economic problems brought agriculture in the forefront.

Net Product: It is the surplus which is obtained by subtracting input (that is the amount of wealth destroyed in the production of new wealth_ from the amount of new wealth produced. According to physiocrats, labour when applied to agriculture was capable of producing net product. In this connection Quesnay – the father of physiocracy observed in his articles Farmers and Corn – “Agriculture and commerce are constantly regarded as the two sources of our wealth. Commerce like industry is merely a branch of agriculture. These two states exist only by virtue of agriculture. It is agriculture which furnishes the material of industry and commerce and which pays both; but these two branches give back their gain to agriculture which renews the wealth which is spent and consumed each year”.

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Thus, in their opinion, agriculture alone was productive. Other industries, transportation and manufacturing were considered sterile. As a result of net product, economy was possible and civilization had become a fact. In the words of De Nemours – “The prosperity of mankind is bound up with a maximum net product”. As agriculture was regarded as the source of all wealth, they suggested that it should be promoted.

Physiocrats divided the existing society into two classes – productive and sterile. Agriculture which produced new wealth was productive; and industry which drew upon agriculture was sterile. “Industry” as Rivere pointed out, “merely superimposes value, but does not create any which did not previously exist”. Although trade commerce and industry performs of wealth produced by agriculture. Hence agriculture in the physiocratic system occupied the primary place; and all others the secondary one. It should be clearly understood that it did not imply any contempt for the latter. Le Trosne held that which was applied anywhere except to land was sterile because man was not a creator; and to Turgot artisans were domestic servants or the hirelings of agriculturists.

The physiocratic ideas of Net Product (which resulted from the superior bounty of Nature) were repeated by Adam Smith and Robert Malthus. It was David Ricardo who later on held that net product or rent was “the inevitable result of the limited extent and growing sterility of land”. It has clearly been mentioned that Mercantilism had laid great emphasis on the development of trade and commerce. Mercantilists thought that wealth could be increased only by exploiting colonies and neighbours. According to physiocrats, agriculture alone could increase national wealth. Thus physiocracy was a clear challenge to mercantilism. The idea of Net Product was a great contribution made by physiocrats to the development of economic analysis.

Circulation of wealth: Credit for attempting a synthesis of the distribution of national wealth also goes to physiocrats. The circulation of net product in the words of Turgot, “constituted the very life of the body politic, just as the circulation of blood did of the physical”. Quesnay who had diligently studied Dr.Harvey’s discovery of the circulation of blood systematically introduced the biological conception into the system of sociology with the help of the Economic Table (1758) which was reproduced by the British Economic Association in 1894. The entire society was divided into four classes of people: (a) Productive class (cultivators), (b) Partly productive class (land – owners), (c) Non-productive class

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(merchants, artisans and professionals), and (d) Workers and labourers. While the first three classes were placed in one group; and were independent and active; the last one was dependent and passive.

The annual net product or wealth circulated among the above four classes of people. When agriculturists produce, they do not keep the entire produce with them. They have to part with a major portion, to be given to land lords and some portion to be given to merchants who supply them agricultural machinery, implements, clothes, kerosene, etc. Let us suppose that total produce is 4 million tones out of which cultivators keep 1 million tones for maintenance and farm expenses. Out of the remaining 3 million tones landlord receive 2 million tones in the form of rent and various taxes, and the merchant class gets 1 million tones for supplying farmer’s commodities needed by them. The question is whether landlords and merchants will always keep the part of the wealth with them. Landlords also require certain important goods, so they will give one million tones to the merchant class from whom they purchase commodities. But in the end both landlords and merchants would give their portions to farmers for supply of foodgrains and raw materials. In this way, 3 million tones have gone back to farmers who invest them in cultivation and the bounty of nature will again reproduce for distribution among the various classes of people next years.

Practical and Policies:

Value. Their attention being largely concentrated on production, physiocrats evinced little interest in the concept of value, although they suggested good price (both prix) for agricultural produce. According to Turgot, value depended upon utility. It must be noted that his ideas about value were much more scientific. Physiocrats did not regard value inherent in commodities. They also differentiated between value-in-use and value-inexchange: but treated price and values as one and the same thing. In the words of Quesnay – “What is called value is price”. He discussed a cost of production theory of price. Value according physiocrats was not fixed but changed from time to time, depending as it did, upon demand.

Trade. As the commodities of equal values were exchanged, trade and commerce were regarded as unproductive. According to them, foreign trade did not produce any real wealth. It was considered indispensable in case of those commodities which could not be

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produced in the country but according to Mercier de la Riviere it was necessary evil. Physiocrats regarded the reselling of commodities or commercial transactions as a Sheer waste. It is interesting to quote Riviere again – “Like mirrors, too, the traders seem to multiply commodities, but only deceive the superficial”.

Wages and Population. Physiocrats did not make any contribution to the theory of wages. As the employer had the choice of selection among workers, the latter were paid subsistence wages only; but want constituted subsistence wages, was not clearly analysed. The amount to be paid might have included a little savings. Wages (Natural Wages) depended upon economic conditions then obtaining in France. There was no problem of wage determination. They did not work out any theory of population. Some thought of the possibility of over-population, although they were not afraid of it. To quote Riviere – “As it is in the physical order that men thus united in society multiply promptly by a natural and necessary parallel to that multiplication they are reduced to lack the means of subsistence if they do not, at the same time, multiply those means of cultivation”.

Profit. Adam Smith regarded profit as a constituent element in the supply price of commodities. According to Sir James Stuart, it was regarded as a sort of superior wage or a surplus over cost the level of which changed in accordance with the prevailing circumstances. It was an important part of net revenue. Physiocrats maintained that the rent of land was not only an income in the nature of a surplus but was also the only income in the form of a surplus.

Functions of State. Although physiocrats were not anarchists, they suggested a State with the minimum of civil laws which placed hurdles in the way of realizing Natural Order. Every law, according to them, should be an expression of the Divine wisdom. One of the anecdotes reveals, that Riviere was invited to St.Petersburg to advice Catherine the Great, the then Empress of Russia, on the new Constitution of the country. After taking into consideration the great difficulty and responsibility he opined that “the best way of achieving her object was just to let things take their course”. Consequently, he was dismissed from the Russian Court.

Taxation. Inextricably bound up with the theory of net product was the theory of taxation – one of the main characteristics of physiocratic thought. Taxes were required

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for meeting the expenses of State – for the maintenance of security, spread of education, establishment of public works and for increasing the productivity of land. Physiocrats argued that taxes should be paid by the people liberally. Net product was the only source (and landed proprietors the only class of people) to be tapped for taxes. They suggested a single tax on land, i.e., 30 per cent of Net Product. This was regarded as a major contribution but they argued that it meant that 30 per cent land belonged to State. The annual income of the king grew with every increase in net product. Wage earners could not pay taxes as their incomes formed the irreducible minimum.

Private Property. Physiocrats defended the interest of land-owners. The society of those days was governed by idle proprietors for whose maintenance property was extremely essential. They put forward several arguments for the justification of private property. The one very potent argument was that as those proprietors had cleared and drained land, enclosed it and put up buildings upon it, or they were the descendants of those proprietors, they must be paid for their activities. Their right was prior and superior even to that of cultivators because if land were not made cultivable, cultivators could not cultivate it and produce.

It should also be noted here that if physiocrats defended private property, they also imposed upon the landed class certain duties, relating to the improvement of land, and bringing new land cultivation, namely, payment of entire taxes, protection of the interests of their tenants, disposal of the wealth provided by the nation in such a way as to further general interests. Etc. This would ensure a fair circulation of wealth

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UNIT -II CLASSICISM

The body of doctrines which held sway in England during 100 years after the decline of Physiocracy is named as Classicism. These doctrines were propounded by Adam Smith and his followers during the latter half of the eighteenth century and after. Adam Smith has been regarded as the father of the England classical economics and the leader of the Classical School. The ‘school’ comprised many illustrious writers and economists among whom the most important were besides Smith, Ricardo, Malthus, Mill and Senior. These writers, while following the basic principles enunciated by Smith, helped the

development of the science of political economy by formulating new theories and expanding, illustrating, and elaborating the theories propounded by their leader.

Although, the seed had been shown already during the latter half of the seventeenth century, the directions in which the science of economics developed later were determined during the 18th century. It must be recognized that in England, prior to the publication of the Wealth of Nations, the eighteenth century had already produced a number of good works in the domain of economics, e.g., North’s Defence of Free Trade; Petty;s Analysis of Theory of Value; Cantillon’s Essai; Steuart’s Principles – and all these were great achievements in themselves. But in spite of all this, the achievement was limited and room was left for confusion. “Petty’s preoccupation was with public finance, and his other contributions were hidden beneath a mass of less important material. Steuart’s title was a misnomer; he lacked the understanding of the inner laws of social processes. And even Castilian’s Essai was hardly systematic enough to present to the world a coherent picture of the economic mechanism”.

It was only in the last quarter of the eighteenth century that some changes and happenings of far reaching importance took place – the Industrial Revolution, the American Declaration of Independence, the publication of the Wealth of Nations – all these brought about a profound change in the realm of economic, social and political thought. It was particularly noticeable in the domain of economic thought. Smith and Ricardo cleared the haze and “brought order” into the chaotic state of economic inquiry. It is this order which has been given the name of classicism. Different reasons have, however, been assigned for choosing this name. Some writers have used the terms ‘classical’ for these doctrines simply to describe their unquestioned and widespread

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authority which they possessed. Some other writers have used the term to emphasize a special significance to the policies which were formulated consequence following these doctrines. And sometimes the term has been used for signifying the fact that the classical system differed from the critical schools which developed after it and to which economists signify the decay of the classicism.

It is, however, difficult to say when the classical system came into existence and when it ended. It we keep in view the contributions of the eighteenth century English economists and the French economists. We can say that the system came into existence with the publication of the Wealth of Nations. Some economists believe that the classical system never ended and that its tradition has been alive all through the works of modern never ended and that its tradition has been alive all through the works of modern economists. In spite of this belief one cannot ignore the change that took place in the economic thought in England after the first two decades of the 19th century. But it remains a fact that the classical doctrines had a favourable climate and many of the classical ideas survived and went on influencing the policies of various countries for a considerably long time.

There may be some difference of opinion regarding the founders of the classical school. Both Smith and Ricardo were generally responsible for laying the foundations of the classical school. Such a statement may look a bit odd, since Smith’s book was published when Ricardo was only four years old. It was after 41 years of the publication of the Wealth of Nations that Ricardo’s Principles appeared. While Smith was a philosopher, Ricardo was a businessman. Ricardo’s book appears to be a dwarf in volume when compared to Smith’s book. They also differed in their plans, methods and style. With all the differences, their agreement on fundamental questions was to such an extent that their names will ever be put together as the founders of the classical school. In this section we shall deal with the ideas and doctrines of the various members of the classical school.

ADAM SMITH (1723 – 1790)

Biographical Note: Born in 1723 at Krikaldy (Scotland), Adam Smith showed early promise of brilliant scholarship. He went through school and the Universities of Glasgow (1737 – 1740) and

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Oxford (1740 – 1746) devoting himself to the study of mathematics, natural philosophy, moral and political science, returning in 1751 to Glasgow as Professor of Logic and later, of Moral Philosophy-Deeply influenced by the thought of two eminent philosophers Francis Hutcheson, under whom he made a lasting friendship, his economic ideas were already well-formed and in his lecturers, he advocated economic and commercial library. In 1759, he published his “Theory of Moral Sentiments”, which brought him great fame. In 1764, he undertook a Continental tour, accompanying the Young Duke of Buccleuch on his travels abroad, when he met Voltaire and Turgot and became familiar with physiocratic thought. On his return to Scotland in 1766, he settled down to work on his masterpiece, “The Wealth of Nations” which appeared in 1776. An instant success; it introduced him to the highest social and political circles, and Adam Smith was appointed Commissioner of Custom for Scotland, a distinguished Job with a good salary. In 1782, he was elected Lord Rector of his alma mater, the University of Glasgow and in 1790, he died, aged sixty seven.

Contents of “The Wealth of Nations”: The full title of the book is “An Enquiry into the Nature and Causes of the Wealth of Nations”. It consists of a brief introduction followed by the Books. The first two Books deal with theories of production, exchange and distribution of wealth a brief outline of which is as follows:-

Labour is the true sources of the wealth of a nation. Division of labour is the means by which the national wealth can be increased. Division of labour must be followed by exchange of commodities, this is discussed next. Money as a medium of exchange forms the next topic, followed by a discussion on price. According to Smith, the Components of price are wages, profits and rent, and they are discussed next, forming his theory of distribution.

The third Book dealt with economic history of European nations. In the fourth Book, Smith examines critically the Physiocratie and Mercantilist theories. The fifth Book deals with public finance.

Smith has been successful in borrowing from his predecessors all their more important ideas and welding them into a more general system. A true social and economic philosophy was substituted for their fragmentary studies and an entirely new value given

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to their contributions. Like most great writers, Smith knows how to borrow without impairing his originality. Over a hundred authors are quoted in his book, though their names are not always mentioned. Taken out of their isolation, they help to illustrate his general theory becoming they illuminated in the process.

Economic ideas: Importance of Labour: To Adam Smith, labour is the true source of wealth. The idea is the foundation stone of “The wealth of Nations” and is clearly stated in the opening sentence of the book: The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consists always either in the immediate produce of the labour, or in what is purchased with that praduce from other nations”.

Probably Smith’s emphasis on labour as the source of wealth was caused by his desire to distinguish his ideas from the prevailing Mercantilist and Physiocratic nations regarding the source of wealth. The Mercantilist regarded foreign commerce as the only source of wealth, while the Physiocrats considered agriculture the mother of all riches. Smith contradicted these mistaken notions by making work in every sphere of activity (not merely in commerce or agriculture) as the true source of wealth.

Division of Labour: Division of Labour is a system of social co-operation by which production is carried on in society. Every individual does a specialsed work in co-operation with other individuals and the combined efforts of these individuals produce the national Divident. Division of labour provides the co-operative efforts necessary for the production of a large number of commodities for the satisfaction of the desires of all. It is thus a true source of social progress and human welfare.

Capital: Smith considered capital as of great importance in production. He thought that the amount of economic activity is limited by the amount of capital investment. Capital is the source of all wealth and the active agent in production, Capital formation is the result of the working of self-interest in individuals which urges them to save and invest their savings in the most profitable fields.

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There is an obvious inconsistency in Smith’s treatment of both labour and capital as the source of wealth. At one place he considers labour the source of all riches and capital the product of labour, at another capital of primary importance to which labour is subordinate. However, to the modern economist, there is no confusion on the point: Land, Labour, Capital Organisation and Enterprise, all the five factors are equally indispensable in production.

Investment: Smith considered that the most profitable investments of capital; in order of choice were – agriculture, industry, domestic trade, foreign trade, transport and navigator, and domestic retail trade. He felt that with liberty to choose, investors would naturally prefer this order. Smith’s distinction between the various investments is obviously wrong and quite contrary to his doctrine of division of labour which would give equal importance to all types of capital investment. In actual practice, so far as returns of capital are concerned, agriculture, which Smith considered the most profitable, is probably the least profitable. Smith’s treatment of capital and his preferential treatment to agricultural investments can be traced to the Physiocratic influence on his thought.

Money: Smith’s treatment of money as an instrument of exchange was calculated to overthrow Mercantilist notions of money as the sole form of wealth. He demonstrated that since money is needed simply for the purpose of buying and selling goods, the amount of money will depend upon the level of internal economic activity of the nation. It is impossible to prevent the export of money to foreign countries, if it is superfluous internally; hence the futility of all Mercantilist devices to keep money at home.

Value: Smith’s theory of value is as follows. He distinguishes ‘value-in-exchange’ or market value or price from ‘value-in-use’ which to the modern economist would mean ‘utility’, Smith did not consider ‘value-in-use’ or utility to have any relation with determination of price.

Rent:

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Smith’s ideas on rent were not well formed. At some places, he is surprisingly close to the modern view-point on rent, at others he is hopelessly embedded in Physiocratic notions.

Rent is considered as a monopoly price paid to the landlord for the use of land. It varies with fertility and situation. Improvement in transport services tend to lower and equalize rents. Haney considers that except for the mistaken notion of the landlord as a monopolists and rent as a monopoly price this view-point is allied to the modern concept of rent.

Wages: Generally, he talks of demand and supply of labour as the factors determining wages. The supply of labour is limited by the cost of living of workers, depending on current prices of commodities; the demand for labour is determined by the amount of stoek available, the level of national capital. In an expanding economy, higher wages will prevail due to the greater demand for labour, in a stationary economy; wages will sink below the subsistence level.

Profit and Interest: Adam Smith did not clearly distinguish between profit and interest. Profit was the return was the return on capital; interest was a part of profit which was to be paid to the owner for the use of the capital borrowed. In brisk business conditions, competition kept the rate of profit low, because wages were increasing. In slack conditions, the opposite happened; wages decreased and profits went up.

Public Finance: Smith’s treatment of Public Finance, especially taxation, is remarkably clear. To him there were two sources of public revenue, firstly the fund, capital and the property of the state and secondly, taxes from citizens. For raising revenues, Smith laid down the basic principles which should govern taxation policy. These principles, called the four canons of taxation are:(1) The Canon of Ability:- Every one should contribute according to his ability to pay. (2) The canon of certainty:- The Amount and method of payment should be pre-planned and clear-cut, both to the tax payer and the state.

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(3) The Canon of Convenience:- Taxes should be collected by a method which should cause the least inconvenience to the taxpayer. (4) The Canon of Economy:- The state should spend the least possible amount in the collection of the taxes. Smith considered rent as the best source of tax. He also hinted at a system of progressive taxation.

Adam Smith’s Liberalism: Adam Smith was a great champion of the principle of economic liberty. He felt that laissez faire i.e., non-intervention of the state in economic matters, was the policy which would bring about national prosperity. Toynbee has remarked that Smith’s entire economic thought is a plea for Liberty, “Every page of his writing is illumined to the passion of Freedom”.

Functions of the Government: The functions of the State were to be confined only to those spheres where individual action was not possible. The three primary duties of the State were administration of justice, defence against foreign aggression and provision of public works. Other functions that the State might undertake were limitation of the rate of interest, administration of the post office, compulsory primary education, issue of bank up to £5 and imposition of several minor regulations in foreign trade.

Naturalism: Every individual is motivated by self-interest, “the natural effort of every individual is to better his own condition”. Impelled by this nature urge, individuals undertake economic activity and the cumulative effect of the varying activities of these individuals is the growth of economic structure of a huge molecule, brought about by the spontaneous sticking together of millions of individuals, the force which gives it unity and strength is individual self-interest.

A critical Estimate of Smith’s Economics: Smith has a strong claim to be called the Father of economic Science. His predecessors had discovered certain isolated principles but were unable to build them into a harmonious system. Smith accepted what was best in French and English thought, made it his own and placed the different principles in relationship with each other, “into a

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consistent harmonious and beautiful system” (McCulloch). He demonstrated their truth, limitations, practical importance and value. This gave political economy a definition and a real content which it formerly lacked. The field of Economics was clearly defined by him as starting from production through value to distribution, a pattern which has been followed ever since.

Smith’s way of contemplating Economics was entirely new. He developed the ‘price system’ or value economics. His economics held exchange value as the centre of all economic activity; production of wealth was not dictated by nature but the demand of the market. Distribution was also controlled by considerations of ‘price’ of the factors of production. The main problem of Economics is the determination of ‘value’ which has been pursued by the Classical School as well as the Marxists.

Smith’s literary style, persuasiveness, breadth of outlook, and superiority in the extent and the accuracy of his knowledge “to his predecessors”, (in the words of N.W.Senior) ‘perhaps to every writer since the time of Aristotle” make “The Wealth of Nations” a unique book. It is a store-house from which later economists have borrowed freely and developed valuable ideas. It has inconsistencies within, like the dual theory of value or the sketchy theory of distribution, but the main outlines on which Economics has developed during the 19th century, were inherent in it.

Prof. Eric Roll has analysed that the great advance in Economic Thought which is due to Smith is the emancipation from Mercantilists and Physiocatic fetters. For two hundred years economists had been searching for the ultimate source of wealth. The Mercantilists had found it in foreign trade. The physiocrats had gone further and had shifted the origin of wealth from the sphere of exchange to that of production. But they had still remained confined within one particular form of production, agriculture. Adam Smith building on the foundations of Petty and Cantillon affected the final revolution. Smith still spoke of wealth in the sense of useful material objects and was led to inquire into the social rather than technical appearance of wealth.

Prof. Haney has concluded that Smith’s chief contribution to economic doctrine was his neatly rounded and bold notion that economic life was a concatenation of processes of exchange.

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DAVID RICARDO, MALTHUS, J.B.SAY AND J.S.MILL

David Ricardo (1772 – 1823): David Ricardo, famous for his doctrine of rent, was born in 1772 of Jewish parents living in England. He had intensive commercial education and at the age of 21, following differences with the family on his marriage and conversion to Christianity, he set up an independent business on the London Stock Exchange and within five years was a millionaire. The rest of his life was devoted to academic pursuits. He began his study of economics in 1799, publishing pamphlets dealing with current monetary problems. His man book, “On the Principles of Political Economy and Taxation”, (1817, Editions 1819, 1821) was an epoch-making work, as it is the first complete statement of Classical economic theory. It was followed by several other books. As Member of Parliament in 1819, he was considered an authority on economic matters and was liberal and progressive in his political opinions. He died in 1823 leaving behind a large work and voluminous correspondence with his friends, (especially Malthus McCulloch and James Mill). The collected edition of Ricardo’s work edited recently by Prof. Pierro Sraffa for the Royal Economic Society occupies 10 volumes.

Doctrine of Rent: The originator of the Ricardian Theory of Rent was James Anderson – a Scottish writer on agricultural topics who had revealed the same thing in 1777 but it so appears as if it escaped the eyes of Adam Smith, as he did not mention Anderson in his Wealth of Nations. The idea of diminishing returns was quite unknown to the Father of the Science of Economics. In the beginning of the 19th century, there writers – Anderson, Malthus and Torrens threw light on the theory of rent, James Anderson up to 1801 believed in the extensive margin and Malthus in the second edition of his Essay on the Principle of Population (1803). Clearly stated the working of the law of diminishing returns the law of rent also appeared in the Essay on the External Corn Trade by Colonel Robert Torrens, published in 1815. At about the same time sir Edward West dealt with the rent concept in his Essay on Application of Capital to Land. David Ricardo’s law of rent which embraced to phases – cultivation of inferior quality land and diminishing returns leading intensive margin, was contained in his pamphlet – Essay on the Influence of a Low price of Corn on the Profits

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of Stock. Later on the same theory of rent appeared in a fully developed form in his Principles of Political Economy.

To Adam Smith, rent was the price paid to the landlord for the use of land. It was a free gift of nature. According to him, “The rent of land not only varies with its fertility, whatever be its produce, but with its situation whatever be its fertility”. Physiocrats regarded it as a free gift of nature that went to increase the national wealth. But none of them ever tried to determine the amount of rent to be received by different landlords. Ricardo defined rent as “that portion of the produce of the earth which is paid to the landlords for the use of the original and indestructible powers of the soil”. He assumed that in every country the most fertile and most favourable situated land was cultivated first.

So long as the most fertile land is available, the question of rent will not arise. When the population of a country increase, recourse will be had to less fertile less favourably situated or interior or second grade fertility land. Suppose, the first grade land produces 6 quintals of grain and the second grade land of equal area produces 5 quintals. Thus, the difference, i.e., 1 quintal will be the rent, the second grade land being the marginal land which simply pays for labour and capital. Owing to the pressure of population the third grade land is brought under the plough which yields 4 quintals only. Now this land becomes marginal and rent will be as follows:On the first plot of the land On the Second plot of land …. …. 6 – 4 = 2 quintals 5 – 4 = 1 quintal

And if the fourth grade land is cultivated which yields 3 quintals only it would become marginal; and rent would accrue on the first three plots in the following quantities: On the first plot On the Second plot …. …. 6 – 3 = 3 quintals 5 – 3 = 1 quintal

One important thing that we notice is that rent on the first quality land goes on increasing more and more as inferior land are brought under cultivation.

Rent also accrues in case of intensive cultivation due to the operation of the law of diminishing returns. If successive does of labour and capital are applied to the same plot of land, returns will be declining. If the first dose of labour and capital gives 7 quintals of grains, the second dose would give 5 quintals and the third may yield 3½ quintals only. In this case the last use of land will be considered marginal; and the differential surplus

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or rent on the first dose will be 7 – 3½ = 3½ quintals and on the second use 5 – 3½ = 1½ quintals. Ricardo himself said, “The capital last employed pays no rent”. We, come to the conclusion that the Ricardian Theory of Rent applies to both extensive and intensive cultivation. Whether price determines rent or rent determines price was also a controversial point. Ricardo clearly stated that corn was not dear because land yielded rent; but land yielded rent because corn was dear. Thus, the prices of agricultural commodities determined rent which more favourably situated and more fertile land had to pay, “Corn which is produced by the greatest quantity of labour is the regulator of the price of corn; and rent does not and cannot enter in the least degree as a component part of its price”.

Ricardo applied the Theory of Rent to mines and quarries also, and remarked, “the return for capital from the poorest mine paying no rent, would regulate the rent of all the other productive mines”. What will be the effect of improvements on rent? The tendency of improvements is to reduce rent in as much as they reduce the inequality in the produce of different lands. The use of better manures and chemical fertilizers raises the produce on a smaller are withdrawn from cultivation. An improvement in the agricultural machinery, on the other hand, would reduce the cost of production, quantity being the same. It would reduce money rent, corn rent remaining the same.

Criticism:

The differential theory of rent, as propounded by David Ricardo, although it has undergone minor changes, is still fundamentally correct. M. de Foville criticized him saying that he was a false prophet and a mistaken apostle. He has been criticized by some writers on the point that he had not taken into consideration the element of situation. This criticism has been leveled without seeing main text of the book where Ricardo wrote – “The most fertile and most favourably situated land will be first cultivated”. In this sentence both fertility and situation of land have been clearly mentioned.

Another criticism is that history does not justify the operation of this theory because of the development of international trade and of the means of transport. It has been contended that these developments have placed limits on high rents. If international trade has developed; and with the help of transport foodgrains are imported from other

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countries, it does not mean that the theory is wrong. It simply means that food importing countries have for the time-being postponed the cultivation of inferior lands; but people will have to take recourse to these lands due to the pressure of population.

Ricardo had assumed a uniform quality of corn produced on different lands and free competition. Which have also been criticized? But for a theory like that enunciated by Ricardo (abstract theory) both these were essential. The point was further developed by Stanely Jevons in his Law of Indifference of Markets. The criticism leveled by Richard Jones in An Essay on the Distribution of Wealth that the theory does not apply to peasant’s rent (customary or contract rent) is rejected. It must be clearly understood that the differential surplus of Ricardo, i.e., economic rent is quite different from contract or customary rent, which is indicative of the fact that full economic rent is being realized.

MALTHUS

Biographical Note:

Thomas Robert Malthus was born of liberal parents in 1766 and had an excellent education at Cambridge, after which he entered the Church. After the anonymous publication of his “Essay of the Principle of “Population” in 1798, Malthus left for a tour of Europe (1799 – 1802) Where he continued to study the population question more intensively. In 1803 he published a more amplified and enlarged second edition of his “Essay”. From 1807 till his death in 1834, he worked as a Professor at the East India Company College at Hailey bury. In his life time the “Essay” passed through four editions, each one differing from the other in significant material detail, so that his viewpoint became considerably advanced, as he continued to think on the problem.

His other important works are “The principles of Political Economy” (1802), “Studies dealing with Corn Laws” (1814 – 15), “On Rent” (1815), “The Poor Law” (1817) and “Definitions on Political Economy” (1827).

The Theory of Population:

The Malthusian principle can be briefly stated under three headings:-

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(a) The rate of growth of population:- If unchecked, population has a minimum tendency a double itself in every 25 years. The increase small be in the ratio 2 : 4 : 8 : 16 : 32 :

64 (if each item represents the population after twenty five years). The items of the series represent a geometric progression, each item being a multiple of the previous item by a fixed number.

(b) The rate of growth of subsistence:- The corresponding rate of growth of subsistence shall be 2 : 4 : 6 : 8 : 10 : 12….. Each item of the series representing the food supply after twenty five years. The series representing the food supply after twenty five years. The series is called an arithmetic progression, each item increasing by a definite amount over the previous item. This is the maximum possible rate of increase of subsistence. (c) The checks to population:- This lack of balance between the population and subsistence can be corrected by two methods.

(i) The positive (arbitrary) checks to population which increase deaths by insufficient nutrition, leading to starvation deaths, epidemics, cannibalism, infanticide and war. (ii) The preventive (conscious) checks to population which decrease births, which Malthus would include “moral restraint”, meaning thereby, “restraint from marriage which is not followed by irregular gratification” (of the sexual desire).

In brief, Malthus sought to demonstrate that human beings have unlimited powers of reproduction, which they exercise under the impulse of the sexual desire. The means of subsistence however, have a lower capacity to increase due to the limited fertility of the soil. The result is over-population, in which too many claimants run after to few resources. The situation, can be corrected either by a conscious voluntary limitation of births by postponement of marriage or else deaths will increase by natural calamities, epidemics and disease. Malthus supported his thesis with facts and figures drawn from the history of many countries.

The geometrical and arithmetical progressions of increases of population and resources have been widely criticized. The geometrical series, however, seems to be correct, since it represents the biological law of generation. Doubling of population implies that a couple (two Persons) should produce four to six children in all, assuming that two are likely to die before reaching maturity. A family of five or six children is a reasonably normal size and thus Malthus was right in assuming doubling of population. In France,

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where there are on an average three children to a family, the population is decreasing. There can be difference of opinion on whether the period of twenty five years chosen by Malthus is correct. Perhaps it is correct for India, where marriages are early, for western countries, the period may be taken as thirty three years, three generations to a century. The arithmetical progression for increase of resources has been arbitrarily selected and there is no proof in support of it. The real reason of lower rate of increase of resources is the tendency of diminishing returns in agriculture due to the limited fertility of the soil.

As Malthus puts is, “It must be evident to those who have the slightest acquaintance with agricultural subjects, that in proportion as cultivation is extended, the additions that would yearly be made to the former average Produce must be gradually and regularly demising”. This is the Law of Diminishing Returns in Agriculture, using the concept of “average” returns; rather tan ‘marginal’ returns as in the modern statement of the Law. Malthus never made a clear statement of the Law; it remained merely an assumption with him. It was for Ricardo to state in clear scientific form. The real merit of Malthus lies not so much in the ratios, geometric and arithmetic, but in the tendency which they describe. Malthus himself did not strictly adhere to the mathematical accuracy of the geometric and arithmetic ratios and in his later editions he speaks of these merely as tendencies, “It is the constant tendency in all animated life to increase beyond the nourishment prepared for it” (6th edition). The Malthusian series

are certainly true if taken as a statement of tendencies i.e., they would be true if not interfered with (or to put it in economic language, if other things remain the same). By other things remaining the same, we mean that positive and preventive checks do not play an unusually important part.

Checks to population: According to Malthus, the classification of checks to population is as follows: (1) Preventive checks, applied consciously, resulting in, decreasing births. (a) Moral restraint i.e. postponement or abstinence from marriage without irregular sexual gratification. These had the whole-hearted approval of Malthus. (b) Vice–All methods of sexual gratification without the chances of pregnancy like promiscuity, professional prostitutes and all contraceptive techniques. If these methods result in misery the checks become mixed in character, i.e. preventive checks acting positively.

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(2) Positive checks, applied unconsciously and compulsorily, leading to shorter life and increasing deaths; (a) Misery-wars, riots, and excesses of human origin. (b) Diseases and famines. (c) Degraded standard of life reflected in unwholesome occupations, severe labour, bad upbringing of children, over crowding and unhealthy city life. Somehow Malthus was deeply pessimistic and never foresaw the effect of education, prudence and a higher standard of living on the reproductive instinct of human beings. The low net reproductive rate in Western countries is due to voluntary limitations of births undertaken consciously, by the people to maintain their standard of living intact.

In any case, though the West might not have followed the Malthusian pattern of population development, most economists are of the opinion that the populations of the under-developed Asian countries especially India and China have confirmed his forecast. Malthus was only concerned with miseries of the poor and it is only for them that he advocated celibacy. For the rich there is no problem at all, as they can provide for their children. The working-class have to choose either of the two painful ways-starvation or abstinence from marriage. Believing in individual liberty, Malthus would not advocate

state legislation but appealed to their reason and common sense to abstain from reproducing too fast in their own interest.

The implication of this attitude was that Malthus provided the propertied class with a convenient excuse for opposing measures for relief to the workers. Marxists go to the extent of dubbing the entire question of over-population as a “Capitalist bogey”-a device for hoodwinking the poor class and refusing them higher wages and better standards of living. They hold that the real cause of poverty lies in under-production rather than overpopulation.

J.B. Say (1767 – 1832): It was the French economist J.B. Say, who took upon himself the task of discrediting the first group of French economists, the Physiocrats, and popularising the economic ideas of smith on the Continent. In1789, when the Wealth of Nations was published in the French language, say was 23 years of age. He found some stray pages of the book in the beginning and read them. Later on, he read the whole book with great interest. He said, “When we read this book, we feel that previous to smith there was no such thing

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as political economy”. But he found it to be “a vast chaos”. In his words: “The work of smith is only a confused assemblage of the soundest principles of political economy, supported by luminous examples and by the most curious notions of statistics mingled with instructive reflections, but it is complete treatise neither of the one nor of the other; his book is a vast chaos of just ideas jumbled with positive knowledge”. Just after 14 years of the publication of the Wealth of Nations his book entitled Le Trait de Economic politique was published. It has been translated into several languages. In

this book, he has logically arranged and explained the ideas of Smith. regarded as a mere interpreter. But, he was really much more than this.

He has been

Jean Baptist Say was born at Lyons on January 5, 1767. He has a chequered career – as statesman, businessman, and as economist. He can be called the founder of the

French Classical School. In 1803, his Treatise on Political Economy was published and was widely used as a textbook in the colleges. Certain passage regarding government finance were objected to by the then Government. He did not remove those passages and so the second edition could not appear until 1814. He was later on dismissed from the Membership of the Tribunate. Besides his Treatise, his Catechism of political

Economy was published in 1817 and a Complete Course in Practical Political Economy was published 1828-29. In 1831, he joined the college de France as Professor of

Political Economy. He died in 1832.

His Economic Ideas: Critical Ideas: Definition and Contents of Political Economy. Say defined political Economy as a study of laws which governed the production, distribution and consumption of wealth. Exchange has been treated under production. Production

results from the utilization of various factors-land, labour, and capital and distribution results in the rewards paid to these agents of production.

Nature of Economics. According to Physiocrats, political economy, since it was concerned with the realization of the natural order, was essentially normative. Say did not agree with this definition since he thought that it too much concedes to practice. He regarded political economy to be the science of ‘spontaneous economic constitution’, or a study of the laws which govern wealth. purely theoretical and descriptive science. Say considered political economy to be a According to him, the proper role of an He

economist was not to offer advice but simply to observe, analyse and describe.

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wrote once to Malthus that “he must be content to remain an impartial spectator”. We thus find that say had broken the age old tradition and unlike Mercantilists, physiocrats and smith, wanted politics to be segregated from political economy. He did not want the government to intervene in the harmonious and spontaneous working of the economic system.

Immaterial products. Smith recognized land to be a productive factor while he regarded doctors, judges, advocates, artists as unproductive. Say, however, protested against this concept and said that nature co-operated with man not only in agriculture but everywhere. Productive Occupation. Say was very much influenced by machine production, which was in full swing in England and was almost in the primary stage in France. In England, almost everybody was convinced that future was full of prospect, of wealth, work and well-being. Unlike smith, say gave importance to manufactures.

Value. Say’s ideas on value were much more pronounced than those of other classicists. He was not in agreement with the labour theory of value.

Positive Ideas: Law of Markets. In its essence the theory states that goods are paid for other goods and services. According to him, “once the exchange has been affected it is immediately discovered that products pay for products”. Money is merely an instrument, the ‘carriage’ of exchange. Consequently, he says that “sale does not take place

because money is scarce, but because other products are so”. The production of new product automatically creates a market for other products, making overproduction impossible. If certain commodities were in excess, it is because there was a deficiency at some other place. If we want to cure overproduction in any one direction, we must produce more in other direction so as to create a market. This is necessary because

every producer is interested in the welfare of the other producer. With the growth of markets, their size, number and prices will go up and profits will increase. A thriving and prosperous neighbour becomes a lucrative market for other commodities. J.B. say occupies an important place in the history of economic thought. It is true that he lacked insight which led him to skip over the problems instead of making an attempt to analyse them carefully and deeply and though, his treatment of political economy, at places, appears to be superficial, he was sincere in his efforts for transmitting the ideas of his master Adam Smith to the French people. Not only this, he has also been

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successful in rectifying some of the contestable concepts of his master. He has left an indelible impression upon the French Political Economy, “and had the English economists adopted his conception of the entrepreneur earlier, instead of waiting until the appearance of Jevons, they would have spared the science many useless discussions provoked by the work of a thinker who was certainly more profound but much less judicious than say, namely, David Ricardo”.

J.S. MILL (JOHN STUART MILL) Life and Works: Mill, the son of James Mill, an eminent historian, philosopher and political economist, was born on May 5, 1806 in London. He was an extremely brilliant child. At the age of three he learnt Greek and at the age of eight, Latin. When he was twelve he had read many of the Greek authors. At the age of thirteen he had studied history, literature, and political economy. He received his entire education under the guidance and supervision of his father. He used to give reports on his studies every day to his father when he accompanied him on his early morning walks. His father used to put certain questions to him and explain more obscure concepts and principles to him. At the age of fourteen he went to France where he picked up French and studied the Roman and English laws. After study for one year in France he came back to England. In 1823 he joined the East India Company and by dint of hard labour rose to the position of the head of the office in 1856. He retired in 1858 and until death he devoted himself to research and writing. He was an independent member of the House of Commons for 10 years, i.e., from 1858 to 1868. He died in France in 1873.

Mill’s scientific and literary activities were in different fields – philosophy, political science and economics. They appeared in the form of books and articles in periodicals. His principal works are: Essays on Unsettled Questions in Political Economy (1844); System of Logic (1842); Principles of Political Economy (1848); Liberty of Thoughts on Parliamentary Reform (1859); Representative Government (1861); Utilitarianism

(1863); Comete and Positivism (1864); Examination of Sir William Hamilton’s Philosophy (1865); and Subjection of Women (1869). Three of his works were posthumously published: The Autobiography (1873); There Essays on Religion (1874); and Chapters on Socialism (1879).

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Nature and Scope of Economics. Mill has defined economics as the science dealing with “the nature of Wealth, and the laws of its production and distribution, including, directly or remotely, the operation of all the causes by which the condition of mankind, or of any society of human beings, in respect of this universal object of human desire, is made prosperous or the reverse”. He had, therefore, not only studied the laws governing the production and distribution of wealth, which were the only subjects of study for his predecessors, but he has also included all those causes by operation of which society is made prosperous or reverse. He holds that “the creed and laws of a people act powerfully upon their economical condition, and this again, by its influence on their mental development and social relations, reacts upon their creed and laws”. In his opinion the laws governing the production of wealth and those governing is distribution are closely related, as well as different from each other and, therefore, the study of both these types of laws is essential for a science like economics.

Not only this, he went a step further. He treated economics as a part of something larger. The early classical writers did not believe in offering advice but Mill, following in the footsteps of Bentham, was a social reformer. He wanted economics to be more practical and that is why he distinguished between the laws of production and the laws of distribution. We shall now give a brief resume of the main ideas contained in the five sub-divisions of the Principles.

Production. According to Mill, there are requisites of production, namely, labour and natural agents. Labour is any physical or mental effort employed in a particular occupation while natural objects are those which “exist or grow up spontaneously, of a kind suited to the supply of human wants”.

Distribution. Book II of the Principles has been devoted to a discussion on the principles and problems of distribution. To start with, Mill has drawn a distinction between the laws of production and those distributions. He says that the laws of production are just like physical truths and there is nothing optional or arbitrary in them. “Whatever mankind produces”, says, “he must be produced in the modes and under the conditions, imposed by the constitution and external things, and by the inherent properties of their own bodily and mental structures”. Speaking about the distribution, he said that it is a matter solely of human institutions.

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Money and Credit. Mill’s treatment of these topics does not in any way open a new chapter, except that his analysis possesses a greater clarity of exposition and is more comprehensive. He has dealt with subjects like over-production, international trade and the effects of exchange on distribution. Mill has, however, refuted the idea that a general over-production of commodities is possible. While admitting that overproduction of one or more commodities can be possible, he had not accepted the view that over-production of all the commodities at one and the same time is possible. He had advanced two reasons in support of his argument. First, the wants of people for material goods can never be completely satisfied; and secondly, the purchasing power of the people can never be diminished, since purchasing power itself is determined by commodities.

International Trade. His ideas on international trade and international values appear to be more elaborate than those of Smith and Ricardo. Like Ricardo he concluded that “it is not a difference in the absolute cost of production which determines the interchange between nations but a difference in comparative cost”. Mill’s contention, however, was that the ratio of exchange between the two commodities, in international trade, is not determined by the ratio of their cost of production. Values in international trade are governed by a law of “equation for international demand”.

The Dynamics of Economics: In the first three books of the Principles, Mill has chiefly treated the working of economic laws under static conditions or in an unchanging society. In books IV and V he treats of the economic laws in a dynamic society and therefore, he has given the title “the dynamics of the science”.

The Role of Government: In the last book of the Principles, Mill treated topic like the classification and functions of government and the principle of laissez-faire.

Mill has started his discussion by drawing a distinction between the necessary and optional functions of government. The former include those functions, “which are inseparable from the idea of a government or are exercised happily and without objection by all governments”. The latter include such functions by respecting which it

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has been considered questionable whether governments should exercise them or not”. Under the first category come only functions like protection against force or fraud, the framing of laws defining the rights of property and the regulation of inheritance, the enforcement of contracts, the settlement of disputes, and the care of dependents.

Critical Appraisal: From the foregoing account it will be observed that Mill had all the time been in two minds. The Mill of the earlier years appears to be a perfect classicist while the Mill of the later years appears to be a perfect idealist. Being a utilitarian, his materialism was converted into idealism in the works that he produced in the later period of his life. In the Principles, itself, the first three books where he has discussed the static of economics, he appears to be a true disciple of Ricardo and hence materialistic, but in the fourth and fifth books where he has treated the dynamics of economics he is seen standing as a firm idealist. This may be due to the fact that during his early years he was under the influence of Ricardo while during his later years he spoke under the influence of Comte and the socialists. Again, we find that while accepting the Malthusian principle and believing that the situation could be controlled by physical laws and social institutions, he immediately took a somersault and started arguing for a progress through social action.

In his method of study also Mill can be criticized for being inconsistent, in his earlier works, e.g., Unsettled Questions, he openly declared that the deductive method was the only fruitful one. Although he started his System of Logic with more or less the same idea, in the latter part of the book he advocated a combination of both inductive and deductive and deductive methods. Similar is the case with his principles.

Mill’s name cannot be included in the list of economic theorists. As a matter of fact, he could not even succeed in presenting economic doctrines of his predecessors in a logical and consistent manner.

THE NATIONALISTS THOUGHT

Nationalism, to a very great extent, resembled Mercantilism and it rested upon a more idealistic concept of state. It was fed on inequality among nations and it flourished in the

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industrially-backward counties. In the beginning of the nineteenth century, the economic and political conditions of Germany were very bad. It was industrially backward. Agriculture was the chief occupation of the people. The country was divided into many small states among which co-operation – political and economic – were utterly wanting. It was ‘a jumbled mass of states leaving tariffs on each other’. Agriculture was in feudal hands. Besides, at that time an idealistic philosophy – a philosophy of objective idealism also was developing and Kant was its leader. He opposed empires and nationalism and regarded the mind as the only controlling power. According to him, man’s intuitions were the spontaneous result of his conscious thinking.

Fiche attempted to supplement Kant’s thoughts by stressing the freedom of the will and the moral aspects of human nature. He held that each nation must be essentially independent and self-sufficient. Each nation should control its own economic life, and assign to different states their duties. He opposed the very idea of foreign trade. Finally, we find the development of romanticism in art, literature and social thought. Romanticism was a reaction against individualism and the values for which the French Revolution had stood. It was a revolt against classicism. The romanticism wanted to bring the world back to medieval ways of life and wanted to protect the individual by making him a part of the national machinery depending on the state. We find two types of nationalists, one represented by Muller, known as romanticists and the other represented by List, known as protectionists.

Adam Heinrich Muller (1779 – 1829): Adam Heinrich Muller, a Prussian nobleman, was born in Berlin in 1779. He received his education at the Universities of Berlin and Gottingen. He studied law and protestant theology at the University of Gottingen. But in 1805 he took to Catholicism and accepted the offer of the Austrian Government. For three years, i.e., from 1806 to 1809 he lived in Dresden where he delivered a course of lecturers which were published under the title: Lecturers on German Science Literature. He occupied different positions in the service of the Austrian Government and died in 1829. Following are his most important works: The Elements of Politics (1809), The Theory of State Finances (1812), Essay on New Theory of Money (1816), and On the Necessity of Theological Foundation for all the Political Sciences (1819).

His Economics Views:

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(i) Cosmopolitanism. Muller’s views on economic subjects are a reflection of his Catholic faith. In fact they are a sharp reaction against the philosophy of the French Revolution. He was and ardent supporter of old institutions, old social structure and old regime. Consequently, he opposed new reform movements of his times and new teachings and ideas associated with Napoleonic Wars and the French Revolution. He was particularly critical of Adam Smith’s cosmopolitanism.

(ii) Individualism. He criticized the individualism of Smith and emphasized the organic character of the State. “Man is not to be thought of, outside the state”, he said. He defined state as “the totality of human affairs, their union into a large whole”. He further said that the will of all the people was not to be distinguished from the general will, nor the interests. Individual riches were merely the guarantees that the individuals receive from the nation as a whole. He believed in the continuity of the national economy, for he held that nations and states do not include only the present, but past and future generations as well. He held that division of labour between these generations was as significant as that between the different operations existing at the same time and recognized by Smith.

(iii) Self-interest. Muller also objected to the tendency of Adam Smith to attach more importance to material things and enjoyments, excluding all other values of life, especially moral and spiritual values. Similarly, he opposed the idea that man is motivated by self-interest.

(iv)Free Trade. Muller also attacked Smith’s advocacy of free trade. He pointed out that Smith assumed the world market in which foreign merchants were just like separate republics and in which the principle of division of labour operated on an international scale. Contrary to this, he held that nations should be regarded as human beings differing in their thinking, feelings, activities, functions, and physical build-up. Although, Muller accused Smith of absolutism in neglecting the difference of people, it may be said that his own work is not free from this error. He did not recognize the development in time. Similarly, he may be criticized for neglecting the part played by individuals. In spite of his criticisms against Smith and his doctrine, he had all admiration for him. He regarded him as “the incomparable scholar and the greatest of politico-economic writers of all times”; Othmar Spann regards Muller as the greatest

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political economist of his time. It was Muller who gave us the concepts of national soul, national fate and national character.

Friedrich List (1789 – 1846): List was born in 1789 in Reutlingen in the Kingdom of Wurttemberg, Germany. He entered into government service at any early age of 17 as a clerk and was very soon appointed as the Secretary to the Minister-in-Charge of Local Affairs. He was appointed as chief examiner of accounts in 1816 and in 1817 was appointed as Professor of Administration and Politics in the University of Tubingen. During his tenure of professorship he attacked the bureaucratic administration of the civil service and advocated constitutional monarchy. He wrote many articles against the government and consequently, he had to resign from the post in 1819. This was the starting point of his conflict with the government. He had to undergo imprisonment and ultimately had to leave the country. List went to New York in 1825 and toured the whole country. There he came into contact with prominent politicians and economists. It was the time when protectionism was the leading issue in the United States and List along with other enthusiastically took part in their propaganda activities.

He wrote a series of letters to Ingersoll which was later on published under the title: Outline of a New System of Political Economy. After the publication of these letters he earned a great reputation as a protectionist writer. During the last year of his life, he wrote vigorously, toured France and England and devoted his time to the promotion of railroad construction. He also edited one paper. In 1841, he published the first volume of his monumental work entitled The National System of Political Economy dealing with subjects like international commerce, functions of government in relation to trade, and the German Customs Union. His desire was to complete the book in three volumes, but he could not fulfil it. His man objective was to overthrow the principle of free trade as propounded by Smith and his followers and at the back of this he wanted to show the nations, the way England’s commercial supremacy could be over-thrown. Economic Views. List’s economic views are found in the National System of Political Economy. In the preface he has tried to explain his position Vis-à-vis other Economy. In the introduction he has stated his attitude towards the classical political economy and has summarized his doctrines. He has distinguished between science and practice

regarding the questions related to political economy. The “School” has propounded its theories on the basis of assumptions which are unreal and which do not exist at all.

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They have started with the presumption with all was well with the world. They aimed at establishing a universal economy without caring for the differences of nationality. List’s argument, however, is that matters ought to be considered as they are and not as they might become after hundred’s of years. He holds that nations exist; they wage wars against each other and take advantage of one another when they are in a position to do so. Hence the basis of the present life is national life. The nation appears between the individual and humanity and, therefore, there should be national political economy as well as a cosmopolitan political economy. List has, accordingly, attempted to make a realistic and historical study of political economy.

Cause of Wealth. Gide and Rist have pointed out “In fact, he (List) introduces two ideas that were new to current theory, namely, the idea of nationality as contrasted with that of cosmopolitanism, and the idea of productive power as contrasted with that of exchange values. List’s whole system rests upon these two ideas”. List attacked the theory of value as propounded by Adam Smith and his followers. He regarded it nothing more than a shopkeeper’s theory based on the concept of “value-in-exchange”. According to him, wealth and the cause of wealth are two different things and the consideration of the latter is more important.

National Element. List then attacks the ‘school’ for neglecting the national element. As started earlier, List was against the idea of the establishment of cosmopolitan or worldwide economy, as conceived by Smith and his followers. The idea of free trade could have been justified, if there was a universal union of all nations. But, he says that individuals are not end in themselves. They are not only producers and consumers but also the members of nations. The productive power of the individuals is, to a considerable extent, influenced by the social and political conditions of the nation.

Role of Manufactures. According to List, manufacturers were the most important of all the productive resources of a nation, because they develop the moral forces of a nation infinitely. He therefore held that the imperative need encouragement of manufacturers. on his times was the

Protection. The most important weapon thus, according to List for a nation to reach from a lower to a higher stage is that of protection. His arguments for such a policy were

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in many respects original. The policy of protection was a panacea for all ills, but it could not be universally applied to every country and in every period to all the industries.

Productive and Unproductive Labour. In the course of his analysis, List has also criticized Smith for his arguments concerning productive and unproductive labour. He regarded all those to be productive who help in the development of true manhood and womanhood. He also did not agree with Smith, that the labour was poor. The prosperity of a nation does not depend upon labour but upon various factors, namely, upon the development of sciences and arts, the existence of good institutions, laws, religion, morality, security and freedom and upon the harmonious development of agriculture, manufacturers and commerce. List was also in disagreement with Malthus. His views had made him to arrive at optimistic conclusion regarding future. In short, List emphasized many important truths and influenced not only economists that followed him but also men of public affairs. Schmoller has praised List in unequivocal terms. He says: “Nearly all progress in Political Economy since the time of List lies in the development of this thought, in the sociological and socio-political foundation of the science”.

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UNIT-III KARL MARX

Marx: Karl Marx (1818-1883) was born on May 5, 1818 at Trier in a middle-class German family of Jewish extraction. In his early education at the Universities of Bonn, Berlin and Jean, (from where he took his doctorate degree) he came under the influence of Hegelian philosophy, thought he did not agree with its predominantly idealistic tone. Finding that a teaching career was impossible for him on account of his radical views, Marx took up journalism, editing “The Rbenish Times’, daily paper championing the cause of the working class. The paper was soon suppressed and Marx was exiled to

Paris in 1843, where he met prominent French Socialists, including Proudhon and Cabet. He also studied St. Simon and Fourier, which brought him into touch with cream of French Socialism. In 1845 he was exiled from France as well, seeking refuge in Soon their joint-work, ‘The In

Brussels, where he met his life-long collaborator, Engels.

German Ideology’, a critical refutation of Hegelian Idealistic philosophy appeared. 1847 they wrote ‘The Communist Manifeso’, which outlined in London.

After a brief

journalistic interlude in Germany, where he took active part in the Revolution of 1848, Marx settled down in London to his academic labours by about 1850, aided by his wife and Engels, who extended to him invaluable moral, financial and intellectual aid. The failure of the 1848 uprising had convinced him that the working class movement needed a comprehensive and scientific ideology and to the formulation of which devoted the rest of his life. However, he kept up his interest in the organization of the contemporary

working-class movement.

The economic ideas of Marx in two sections: In section I, we will discuss his ideas about Materialistic Interpretation of History, Method of Approach, Money, Division of Labour, and Commercial Capital; and in section II we will critically examine his economic theories.

General Economic Ideas: Materialistic Interpretation of History: Materialism which is opposed to idealism is indicative of the nature of relationship between man and his environment. There are

two ways of examining a phenomenon-one way is to examine a thing in isolation, and

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the other is to view it as an element of the whole.

The close examination of a

phenomenon in isolation from the rest, is undoubtedly an essential part of scientific investigation, but it gives an incomplete and distorted picture of the world and its surroundings’ and when it is examined as part of a whole, it gives us a complete and reliable analysis. Marx was of the view that reality could be clearly understood by adopting a combination of these two approaches. This is in brief the dialectical method adopted by him. According to this method, society must be studied as a whole in its His material interpretation of history rejected all idealistic

historical perspective.

representation. “It is the application of the principles of dialectical materialism to the development of society”.

According to this interpretation, economics, political science, jurisprudence, history and religion are all independent-economics basically providing the most fundamental force. Historical process can be understood by the relationship which exists between men as producers or by the way they earn their living. He held the view that-“All social changes have their ultimate causes in the modes of production and exchange, or their economic factors dominate all history, and determine social organization, classes and class interests”. For him history did not simply mean what had happened; it also included the present and the future, i.e., what was happening; and what would happen in the future.

In a capitalist State, on account of division of labour, production is becoming more and more social; and profits more and more individual, because ownership is concentrated in a few hands. Class struggle is inevitable; and “the history of all hitherto existing society is the history of class struggles”. According to Marx, class struggle would lead to a

revolution to oust the capitalist class and to give birth to a new social order-socialism which was characterized by a classless communistic society in which there would be justice to all, means of production would be owned by the entire community, production would be guided by social needs, and the social product would be distributed among the members of this society in accordance with the amount of individual labour. Thus, the materialistic conception of history presents, in a nutshell, the philosophy of human effort to gain material prosperity.

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Communist Manifesto: It was first published in January 1847 by the Communist League, London in the German language; and was later translated into many other languages. A French translation is said to have appeared about the middle of the same year but as no copy of this edition is available, people doubt if it ever existed. A polish translation of the Manifesto was published in London in 1848 which was not widely circulated, soon after a Danish translation appeared. The first English translation was not published until 1850; and no Russian translation existed until 1860 when its version as presented by Bakunin was brought out in Switzerland. A second English translation was published in New York in 1872 in a periodical, from which a French version was published in the Socialist (New York). Thus, the Manifesto made its way slowly; and it is known to the people the entire world over.

The Manifesto opened with these words:– “A spectre is haunting Europe-the spectre of communism. All the powers of old Europe has entered into a holy alliance to exercise this spectre: Pope and Czar, Metternich and Guizot, French radicals and German policespies….The communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social relations. Let the ruling classes tremble at a Communist revolution. The proletarians have nothing to lose but their chains. They have a world to win”. It laid emphasis on the fact that the history of the existing society was a history of class-struggles. It

presented a philosophy of history according to which a revolution was inevitable: in fact it presented a programme for the future.

Economic Theories: Labour Theory of Value: Labour which produces use-value that cannot be separated from the concrete qualities of an object is a natural condition of human existence-a condition of the metabolism of man and nature which is totally independent of all social forms? It should be clearly understood at individual labour becomes generalized when it produces for the society: his labour becomes part of social labour.

A useful thing has value because human labour in the abstract has been materialized in it. The exchange-value of a commodity, according to Marx, depends upon the labourtime socially necessary for its production. “The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the

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average degree of skill and intensity prevalent at the time”. He pointed out that some people might think that a commodity would be more valuable if it were produced by an idle and unskillful labourer because he would take more time to produce it. But that was not the case. The labour which formed the substance of value was “homogeneous

human labour”, in other words, a uniform labour-power which was spent on production.

It is of interest to note that the difference between the market price and the exchange value of a commodity is responsible for the transference of labour from one industry to the other, ultimately resulting in the increased production of one commodity over the other. Since individual capitalists meet one another only as the owners of commodities; and every one wants to sell his commodity as early as possible, the internal law forces itself only through the composition and their mutual pressure upon one another by means of which their various deviations are evened out; “the law of value exerts its influence; and maintains the social equilibrium of production in the midst of accidental fluctuations”.

Theory of Surplus Value: To Marx, capitalist production was not simply the production of commodities: it was essentially the production of surplus value. The worker

produces, not for himself, but for the capitalist; and it is not sufficient that worker should simply produce: he must produce surplus value. From the point of view of the

capitalist, that worker alone is productive who produces a surplus, and thus becomes instrumental in the self-expansion of capital. Marx established the same relationship

between a school proprietor and a teacher. He said that from the point of view of the former that school master was productive who “in addition to be labouring the heads of his scholars works like a horse to enrich” him because he had invested his capital in a teaching factory.

What actually happens is that capitalist pays to the labourer only those wages with which the later can purchase the means of his subsistence. Marx divided labour into two kinds-necessary labour and surplus labour. If we suppose that a worker in an industry works 8 hours a day, the exchange value of the product of his labour should be equal to 8 hours’ labour. It is quite simple to follow. But the wages that he gets are hardly

equivalent to 4 hours’ labour-this labour is necessary labour and the remaining 4 hours’ labour is known a surplus labour. It creates surplus value which goes to the capitalist.

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Surplus value is thus, the difference between the selling price of the product of labour and the actual wages paid to the worker. In this way, he is exploited by the capitalist. Surplus value is the concomitant of a capitalist society for which the wage system is responsible. It can be increased in three ways :(a) by increasing the working day; (b) by increasing the productivity of labour and (c) by reducing real wages.

Marx also distinguished between absolute surplus value and relative surplus value-the former resulting from an increase in the working day or an increase in the number of working hours, and the latter from reducing real wages or reducing that part of the working day which is meant for the subsistence of workers. Such methods are adopted which prolong surplus labour and shorten necessary labour meaning thereby that the product equivalent to wages is produced in less time.

Criticism. This theory has been considered unsound on account of the following shortcomings: (a) Since Marx regarded money as barren, he remarked about the use of public debt: “it induces barren money with the power of breeding, and thus turns it into capital”. fact, he did not recognize the importance of these functions. (b) The treatment of interest is inadequate (c) The theory ignores the element of time. In

Rate of surplus Value: It is the proportion of the increment of capital (which accrues at the end of production) to variable capital. There are three components of the value of a commodity or finished product-(a) constant capital (value of materials used and depreciation); (b) variable capital (value of labour-power used in Production); and (c) surplus value.

Suppose c stands for constant capital v for variable capital and S for surplus value. Then the total value = c + v + s; and rate of surplus value will be

S=

Surplus value  s  Surplus value Surplus labour =  = Variable Capital  v  Value of labour power Necessary labour

(or) S =

s v

If your want to know the annual rate of surplus value, multiply surplus value by the number of turnovers of variable capital in a year (represented by n).

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Law of capitalist Accumulation: It must be noted at the outset that according to socialists, capital did not exist before the 16th century; and accumulation is the inevitable concomitant of the capitalist system. The capitalist has to accumulate

because he has to maintain his prestige; and has to compete with other capitalists. Accumulation is the transformation of surplus value into capital. The first condition of accumulation is that the capitalist must have managed to sell his commodities; and reconvert the greater part of sale proceeds into capital. In so far as the degree of

accumulation is concerned it depends upon the proportion in which surplus value is consumed and transformed into capital, rate of surplus value and productiveness of labour.

Evil Consequences of Accumulation. Several evil effects result from the accumulation or concentration of capital which are discussed here very briefly:–

(a) Centralisation of Capital. A great evil of accumulation is that large-scale production is controlled by a few persons only. The establishment of corporations,

monopolies, big industrial units, etc., is encouraged, the entire mechanism of which is under the control of that small number of rich men in whose hands capital is centralized.

(b) Concentration of Rural Population in Towns. As independent small producers cannot compete with large-scale industrial units; and as a large number of them are expropriated from land, they move to towns; and increase the ranks of the proletariat.

(c) Falling Rate of Profit. As a result of accumulation the organic composition of capital changes in such a way that there is a general decline in the rate of profit. Whereas, according to David Ricardo the rate of profit had a tendency to decline due to a decline in the fertility of the soil, from the Marxian point of view this decline is due to the development of capitalism. The falling tendency of the rate of profit may, to a

certain extent, be counteracted by an increase in the industrial reserve army, more complex financial enterprise, higher degree of exploitation, cheapening of the materials which enter into constant capital, reduction in wages, etc. But this tendency cannot be checked for a long time.

(d) Industrial Crisis. An industrial crisis is the direct outcome of accumulation because in a capitalist regime there is no question of equilibrium between production and

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consumption.

In order to counteract the falling tendency of profit capitalists adopt

rationalization. They go on increasing production with the help of machinery; but what about consumption! The purchasing power of workers being low (they are lowest paid; and sometimes unemployed) consumption does not increase to that extent. So on the one hand, there is over-production, and on the other, under-consumption. The

permanent gap “between the limitless striving for expansion of production which is the very essence of capitalism, and the restricted consumption of the masses” in the opinion of Lenin, is the greatest contradiction of capitalism.

(e) Growth of Unemployment and Pauperism. It has already been mentioned that with the advance of accumulation the proportion of constant to variable capital changes. With the growth of total capital, its variable constituent or the labour incorporated in it also increases but at a constantly diminishing rate. Technological improvements in

production reduce the demand for labour force, “The labouring population produces along with the accumulation of capital produced by it, the means by which it is made relatively superfluous, is turned into a relative surplus population”. It forms the industrial reserve army which is a condition of existence of the capitalist mode of production-and a mass of human material always already for exploitation. Besides creating unemployment, the development of capitalism has created pauperism which is the direct outcome of an industrial crisis. The capitalist class never tries to

study the situation: it never tries to solve the problems created by capitalism. It was in this context that the authors of the Communist Manifesto observed-“The bourgeoisie is unfit any longer to be the ruling class in society, and to impose its conditions of existence upon society as an overriding law. It is unfit to rule because it is incompetent to assure an existence to its slave with in his slavery, because it cannot help letting him sink into such a state that it has to feed him instead of being fed by him”. Thus, there exist a large mass of casual labourers and a submerged class of paupers, the faster and farther the accumulation, the larger the reserve of the unemployed.

(f) Application of Joint Stock Principle. Accumulation breeds the multiplication of joint stock companies according to which property is reduced to the possession of a few pieces of paper, giving “right to draw dividend in some commercial concern”. Under such a system the number of dependants and parasitic functionaries (directors and highlypaid officials) increases; and expropriation becomes faster. Small capitalists are squeezed out; and more and more branches of production are gradually run by the big

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ones. “The development of joint stock companies and of banking and credit facilities fosters concentration; and enables it to go on much faster than it otherwise would.

Theory of Capitalist Exploitation: Workmen are exploited in a capitalist society. In such a society there are two main classes, those of capitalists and workmen-the former owning the means of production and the latter selling their labour-power? Owing to the expansion of large-scale production with the help of machinery, the number of wageearners increases. Over-production is another characteristic of an industrial (capitalist) society in which commodities are produced for the market; and when the market contracts, workmen are rendered unemployed. It must be noted that when the demand for commodities increases, labour power is required again. Such labourers who are for some time employed; and for some time

remain unemployed form an industrial reserve army which has already been referred to above. Even if trusts and cartels are established, there is no certainty that all workmen will always remain employed. Some of them may still remain unemployed because unremunerative units are closed. Another contributory cause is the expropriation of the

proletariat from land, who move to cities to swell the number of their brethren. Capitalism sows the seeds of its own destruction. To quote Gide and Rist-“In reality

capitalism is the outcome of class struggle –a struggle that will some day spell the ruin of the whole regime when the expropriators will themselves be the expropriated”.

It is to be emphasized that in the Marxian economics, capital is taken to mean that money which is used for exploitation. Whereas in a pre-capitalist society commodities were produced for their value-in-use, i.e., utility; and were exchanged to satisfy the wants of consumers, there being no use of money for exploitation, in a capitalist society commodities are produced with a profit motive. Let us mark the difference between the two situations. In a pre-capitalist economy the equation of exchange was C–M–C in which C stood for commodity and M for money. The commodity produced was

exchanged for money and with the help of that money another commodity was purchased whenever needed. The reason of this exchange was that the second

commodity possessed a greater degree of utility than that of the first commodity. Here money simply performed the function of the medium of exchange. It was not used for the exploitation of anybody.

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But in a capitalist economy, as has been pointed out above, production is undertaken for profit-earning. So the equation of exchange assumes the following form:M – C – M’ in which M stands for money or capital, C for commodity and M for money the amount of which is greater than the amount of the first money. It can be easily understood that the capitalist enters the market with M, i.e., money or capital with the help of which he

purchases C, i.e., commodity or labour power; and sells this labour-power contained in C for M’ which is decidedly greater in amount than M, the difference between M and M being his profit. This difference shows the degree of exploitation.

Marx as Sociologist, Economist and Teacher: The importance of Karl Marx as a sociologist, economist and teacher is very great. He was speculative –minded; and had a deep interest in philosophy. He was a NeoHegelian. He had an extensive command over contemporaneous and historical facts. He was mostly interested in social groups and classes; their location and behaviour. He

showed his extreme anger at those historians who had tried to explain social reality by means of their ideology. He illustrated his social visions with detailed historical facts

more satisfactorily than his contemporary sociologists. The Theory of social classes is a clear indication of this fact. The existence of social classes as separate entities provides a field of fundamental research. Mention of these social classes was made in the Communist Manifesto which stated that the history of society was the history of class struggle. Marx demonstrated how capitalists destroyed one another in that class war: and how it would ultimately lead to the destruction of capitalism.

As an economic Marx went to the bottom of every matter; his interest in every economic problem was paramount. It is admitted that he was a pupil of Ricardo and that he had learnt the art of theorizing from him, but this admission does not undermine his importance as an economist. He has shown his erudition and scholarship in his theoriesof value, accumulation and economic crisis, capitalist exploitation, etc. Although both Ricardo and Marx tried to eliminate the services of land in production, Yet Marx showed a much keener perception of the problem than Ricardo.

Marx, besides being a thinker, sociologist, and economist, was a great teacher also. Emotionally and intellectually dissatisfied young men find in his ideas, a co-ordination

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(synthesis) of economic and sociological analysis-the key to all important secrets. The Marxian diagnosis of economic and social tendencies, which are inherent in capitalism and the consequences that follow, have more than justified themselves, though his prophecy may be wrong, to some extent. Although the Theory of Imperialism was developed in the first two decades of the present century by Neo Marxian’s, yet it has its roots in Das Capital. From the same concept of imperialism, they developed the theory of modern protectionism. Marx, thus, was a great economist, sociologist and teacher. Kirkup has observed in his history of socialism in the combination of learning. Philosophic acumen and literary power, he is second to no economic thinker of the 19th century…..his great strength lay in his knowledge of the technical and economic development of modern industry, and in his marvellous insight into the tendencies in social evolution determined by the technical and economic factors”.

AUSTRIAN SCHOOL OF THOUGHT

Whereas objectivism or objective approach aims at taking into consideration as the primary basis of analysis, social and environmental factors which are beyond the individuality of man, subjectivism or subjective approach lays emphasis on man and the factors directly concerning his psychology, i.e., wants, choices, volitions, personality etc.

In the writings of Ricardo and early socialists objective considerations weighed heavilyone of the reasons why economics fell into disrepute. The best example of an objective approach is provided by the classical theory of value according to which the value of a commodity was determined either by cost of production or by labour-time. The theory had nothing to do with the man who entered into an exchange transaction-or the utility of the commodity for the man concerned. In the beginning of the second half of the 19th century, a school of thought emerged which discarded objectivism; and made human wants the “ultimate casual force in human life”. Utility for this school became the main consideration which established relations between commodities and wants.

Subjective economists believed that an individual acted in anticipation of pleasure, that is, he thought that he would derive pleasure from an action otherwise he would not work. Thus, the prime consideration with economists was to measure utility which the individual derived from the exchanged commodity. At the same time, they also measured dis-utility or displeasure or dis-satisfaction or pain involved in exchange
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transactions. Many hedonistic writers, therefore, regarded economics as a calculus of pain and pleasure only. As subjective economists primarily studied an individual who

possessed “the faculty of deciding alternative utilities” and who was a bundle of wants and a seat of pleasurable sensations, they became extreme individualists. Some of these hedonists began to treat an individual simply as an economic man (homo-economics). Their method of study was abstract deductive. They were opposed to the use to average as classical economists used to do; instead they used degrees-marginal utilities.

The subjective school believed in absolute free competition because it was the only thing that gave maximum, satisfaction to every individual. While it defended the theory of

free competition as developed by classical economists it found fault with there important laws-those of cost of production, demand and supply and of distribution in the analysis of which they could not clearly state which was cause and which was effect; and this confusion led to their “circular reasoning”.

Let us briefly review the above three theories. Classical economists had written that “Price varies directly with demand and inversely with supply”; but it might also be correct to say that demand and supply were determined by price. It was thus quite

impossible to find out cause and effect among these three things-demands, supply and price. Cournot-one of the subjective economists replaced the old formula by his new one-“demand is a function of price”, which means that demand falls with a rise in price; and rises with a fall in price. In the same way, supply is also a function of priceoperating in the opposite direction. “Thus, price, demand and supply are like three sections of one mechanism none of which can move in isolation, and the problem is to determine the law of their interdependence.

As far as the cost of production theory of value is concerned, hedonists laid emphasis on the interdependence of the cost of production and price or upon their equilibrium. The classical doctrine of distribution-comprising those of rent, wages and interest, was also criticized in the same way. Whereas classicists treated them separately, hedonists said that they had an intimate connection among themselves, and thus, should be treated as co-partners, each becoming a residual claimant.

Two School of subjectivism:

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Subjective economists have been divided into two distinct schools: - (a) Nonmathematical or psychological school and (b) Mathematical school: whereas the writers belonging to the Austrian school dealt with the problem of causation directly; and used mathematics only for the purpose of giving illustrations, those of the other school used mathematics extensively; and had a broad tendency to treat economic phenomena as capable of quantitative expressions and subject to independent variations.

Karl Menger, wiser and Bohm – Bawerk–Professors at the University of Vienna one after the other, who fully developed the Marginal Utility Theory, composed the Aystrian School. But they had a few forerunners also. A century before, wheatley had remarked that pearls were not valuable because men dived for them; but men dived for them because they were valuable. In the same way, Condillac had suggested in the 17th century that the value of a commodity increased with its scarcity. It was in 1833 that W.F. Lloyd (Oxford University) explained that a person set a great value on food when its supply was limited; and less value when its supply increased. Moreover, walras gave the idea that rarity was the cause of value.

KARL MENGER (1840-1921) After studying law at the Universities of Prague and Vienna, Menger turned to Economics. H joined the Austrian Civil Service after receiving a doctorate from the University of Cracow. As the result of the publication of his principles of Economics in 1871, he was appointed Professor of Economics at the Vienna University in 1873. Between 1876 and 1878 he was tutor of Crown Price Rudolf.

It was under his guidance that Vienna became a famous centre for higher studies and research. He was an inspiring teacher: his sincere students used to visit his home for a session. In 1900, he was made a life member of the Austrian Parliament. In 1903, he resigned the University service and devoted the rest of his life to research and writing. Among his other works are included Investigations into the Methods of social sciences, particularly political Economy (1883), The Errors of Histograms in German Political Economy (1884) and on the Theory of Capital (1883).

Ideas: According to Menger, several sciences were concerned with the study of economic phenomena, which he called historical, theoretical and practical. In the first category he

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included economic history, and statistics, in the second category, theory; and in the third category, economic politics, public finance and private economics. As he conceived, the field of historical sciences presented a study of individual phenomena in both static and dynamic aspects, and the practical economic science provided a study of regulations which were necessary for the attainment of specific aims. In so far as the theoretical aspect is concerned; it observed the generalized nature of economic problems for which abstraction was an essential device. In other words, the historical method of study was suitable for the first category of subject’s particularly economic history; and the abstract deductive method for theoretical economics.

The said controversy enhanced the importance of Menger, and of the Austrian School as a whole. From 1884 onward, the publications of Menger’s followers namely Wieser,

Bohm-Bawerk, Emil Sax, Robert Zuckerkandl, etc., began to arouse interest; and the influence of the Austrian school spread to Italy and other parts of Europe, to Britain through the efforts of William smart and James Bonar. By 1888 when Menger published On the Theory of Capital, the controversy ended with the mature judgment of Schmoller–“Induction and deduction are both necessary for the science just as the right and left foot are needed for walking”. Really speaking there ought to be room for both approaches-induction and deducation in a field that pretends to deal with a progressive human society.

The difference of opinion regarding the method of study to be adopted by economists as referred to above, seems to be due to radical temperanlental differences between schmoller and Menger. As economic theories could not be applied to the solution of

economic problems, their value could not be estimated correctly; and the probable danger was that they would be under-estimated because of differences between the character of data from which those had been derived and those from which theories in the physical sciences had been developed and secondly because economics was not very old.

FRIEDRICH VON WIESER (1851-1926)

After graduating from the University of Vienna in 1874, Wieser-the son-in-law of Karl Menger, studied for two years in Germany under Knies, Roscher and Hildebrand. From 1903 to 1922 he served that University as professor of political Economy. For the period

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of World War I he was Minister for commerce in the Austrian Cabinet. His widely known books are: The Origin and Principal Laws of Economic Value (1884), Natural Value (1889), and Theory of Social Economics (1914).

Wieser who was deeply interested in the study of history, was considerably influenced by Herbert Spencer’s First Principles and Tolstoy’s War and Peace. While searching for the laws of social behaviour he came to believe that economics was the most useful equipment for the purpose. In 1874, he discovered Menger’s Grundsatze (Principles of Economics); and felt that he had found an essential introduction to the subject he wanted to deal with. For professor Knies’, seminar he wrote in 1876 a paper entitled On the Relation of Cost to Value which anticipated many essential points developed later in his major works.

In this early attempt which was undoubtedly an immature product, closely following the pattern of Menger’s principles, he showed that cost was actually the sacrificed or foregone utility of other goods which might have been produced by the same resources. This concept which in the modern garb is known as opportunity cost came to be known later as Wieser’s Law, this appreciation in indeed indicative of his original thinking.

Economic Ideas: Method of Study. Wieser adopted the same method of abstraction as Menger had done, and the same definition of theoretical problems in terms of value. He seriously questioned the methodological controversy which had arisen between Menger and Schmoller, and came to the conclusion that the former had wasted so much time and energy on it. He believed that methodological enquiries and discussions could not do much to advance social services and suggested that the method of study could emerge only from scientific investigations.

Natural Value. He held the view that value came from utility. It was derived from the intensity of wants, and the want-satisfying power of goods. He defined natural value as a value which was found in a community at a high stage of development carrying on its economic life without price or exchange. He developed the concepts of subjective use value and subjective exchange value. Criticising the labour cost theory he developed his Marginal Utility Theory of Value.

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Law of Imputation of Value. In his book, Natural Value Wieser developed the law in accordance with which value was imputed to the different factors of production-land, labour and capital, under different conditions of demand, supply and quality. His

approach was to observe the productive organization as a going concern, unquestionably an advance over Menger’s formulation. He laid emphasis on the fact that in the case of production goods the imputation of value followed the marginal law, i.e., the smallest contribution was imputed to every single quantity which could be aimed at economically, under the prevailing conditions by the employment of this particular quantity.

Rent and Wages. Wieser’s presentation of the theory of rent was not praiseworthy. Certain basic errors pointed out by him in the Ricardian Theory were in fact due to his confused exposition of it. For example, it was implied that Ricardo was unaware that his doctrine required that the quantities of labour, best land and capital should be limited. It was asserted that the theory was applicable only when there was no rent-land. Even then, he was one of the great writers to suggest that the theory of rent could also be used to explain the returns which went to the productive agents other than land.

Interest. Before reviewing the theory of capital and interest as propounded by him, it is desirable on our part to mention the three postulates of it. I assumed that (1) capital consisted of perishable goods and was completely use up in the process of production, (2) capital reproduced a gross product the value of which exceeded that of capital used up in the productive process; and (3) the total supply of capital was fixed.

Social Economy. Wieser gave certain new ideas in his book Theory of Social Economics published in 1914. In the latter part of this book he made a bold attempt to integrate pure economics with a theory of society. He pointed out that there were social conflicts which frequently led to the domination of one class by another. In social economy there were there kinds of goods-those used by every one (rich or poor), luxury goods, and intermediate goods. The first were determined by the marginal utility of the poor, the second by the marginal utility of the rich, and the third by that of the middle class.

EUGEN VON BOHM-BAWERK (1851-1914) Bawerk was the brother-in-law of Wieser. He studied law at the University of Vienna and political economy at the Universities of Heidelberg, Leipzig and Jena; from 1881 to 1889 he served as a professor at the University of Innsbruck. He served as Minister of

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Finance in 1895, 1897 and 1900. He joined the University of Vienna in 1904.

His

famous books include History and Criticism of Interest Theories (1884), Positive Theory of Capital (1889), and outlines of the Theory of Commodity Value (1886).

Economic Ideas: Criticism of Old Theories of Interest. Before developing his own theory, BohmBawerk critically examined the existing theories of interest in the first volume of Capital and Interest entitled History and Criticism of Interest Theories-a book of 550 pages. In this book he discussed the views of more than 150 writers; and the most interesting chapter was on John Rae and his book Statements of Some New Principles on the Subject of Political Economy which was originally published in 1834, and reprinted in 1905 under the changed title The Sociological Theory of Capital.

Bohm-Bawerk criticized the Productivity Theory of Interest as unsatisfactory and inadequate, and rejected the Abstinence Theory propounded by N.W. Senior as it did not provide a satisfactory explanation to the phenomenon of interest. While evaluating the various forms of the Use Theory (developed by Hermann and Karl Menger) he denied the special uses on which it was based. He likewise found fault with the explanations of the Labour Theory stated by James Mill, Senevil and Schaffie, and the Exploitation Theory developed by Rodbertus and Karl Marx.

ALFRED MARSHALL The industrial conditions in England had also undergone a fundamental change. There was large-scale application of inventions and machinery was being used on a scale hitherto undreamt of. Business organization had been completely transformed since the time of Ricardo and Mill, and credit had assumed a unique importance. Business Cycles were demanding the attention of all economists. The need of state interference in economic matters was fast being realized.

There was an excellent opportunity and, of course, a crying need too, for someone to reconstruct economic theory in the light of the abundant new material available. Alfred Marshall devoted himself to this task and established the Neo-Classical system of economics which enjoyed universal prestige for a generation. Alfred Marshall (1842-1924), was born in London in a middle-class family and had an early brilliant career. He studied for the Church but later gave it up because of his
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interest in mathematics and the social sciences. In his University days at Cambridge, he came in contact with the eminent philosophers, T.H. Green, Maurice and sidgwick, under whom he studied Hegel and Kant. These were to be important influences on Marshall, because they shaped his high idealism and moral tone. Darwin’s biological theories shaped his ideas of social change. He also studied historical authors, like Schmoler and Toynbee, and became familiar with the thought of Mill, Bentham and Spencer. Later he studied Jevons and the Austrians as also Walker and European writers like Cournot and Von Thunen. In this manner, Marshall was completely conscious of all the conflicting tendencies of economic and social thought that existed in those times.

From 1877 to 1881, he served as the principal of the University College, Bristol and from 1883 to 1885 at Oxford. From 1885 up to 1908, he occupied the Chair of Economics at the Cambridge University and upon his death in 1914; he continued to be associated with it as Research Professor. Under his influence, Cambridge became the most important centre of economic studies in the world. He founded the Cambridge School of Economics in which most of the modern British economists started their career.

He was also responsible for the establishment of the Royal Economic Society and the Economic Journal which have become the important forums of the modern British economists. As the most respected British economist of his time, Marshall was associated as a member with the Royal Commission on Taxation 1891-94 the Royal Commission on the Aged Poor, 1893 and the Royal Commission on Local Taxation. Marshall’s important works are “Economics of Industry” (1879, with Mrs. Marshall as coauthor), “Principles of Economics’ (1890), his most authoritative work, ‘Industry and Trade’ (1919) and ‘Money, Credit and Commerce (1923). Important Ideas and Laws: “Political Economy or Economics”, says Marshall, “is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing. Thus, it is on the one side, a study of wealth; and on the other and more important side, a part of the study of man”. It will be observed that Marshall did not regard economics, as a wealth getting science only. It is concerned with the business of life, with material objects, being the requisites of welfare. Further, economics is

concerned with both individual and social actions. He has, thus, attached more importance to man as compared to wealth. This does not mean that he has undermined

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the scientific character of economics. He has really emphasized that since economics deals with the ever changing and subtle forces of human nature; it is not as exact as the physical sciences are. It is in this respect that it is different from the physical sciences. It is in this context that he has deliberately limited the scope of economics to include only those forces which can be measure by the yardstick of money since it has marginal utility for all individuals. Such measurement would give due allowance to individual sensibilities and incomes, customs and habits, and other subjective factors. In short, he wants to study individuals as members of industrial groups and to depend chiefly upon the averages of large number of persons. So far as the quality of human motives is concerned, he thinks that it is the concern of the philosophers and not of the economists. Inspite of all these theoretical hypotheses, he believes that economics can solve social problems to a very great extent. Here he appears to be a great humanitarian. We, thus, find that Marshall was neither a materialist nor a subjectivist. He wanted economics to be both purely theoretical as well as practical.

Wants and Their Satisfaction. Unlike classical economists as Marshall has himself pointed out, he has given appropriate place to the study of consumption or demand. Although the importance of the study of consumption could be realized only after the publication of the works of the members of the Austrian school, Marshall has treated of wants, and other aspects of consumption in greater detail. According to him, consumption is the beginning and the end of all economic activities and that is why he has given a primary place to the study of consumption in his book. He has dealt with, at length, the subject of ‘wants’, their characteristics and classifications. He has also introduced the concept of consumer’s surplus. According to him, consumer’s surplus is the surplus satisfaction which a consumer derives by purchasing a commodity at a lower price than what he was willing to pay rather than go without it. In other words, it is the difference between the total utility of money derived by the purchase of the commodity and the total utility of money forgone in spending it. Obviously enough, this concept is based on the concept of total and marginal utility. This concept did not prove to be so practical as it appeared to be at first. But so far as an apparatus of thought is concerned, it is quite important. It is useful as Prof. Edgeworth has pointed out, “to show that laissez-faire, the maximum of advantage attained by unrestricted competition, is not necessarily the greatest possible advantage attainable”. Edgeworth has said, even “before the publication of the Principles, Marshall quite understood what the critics of doctrine in question have not generally understood,

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and even

some of the defenders have not adequately emphasized that the said

measurement applies accurately only to transactions which are on such a scale as not to disturb the marginal value of money”.

Marshall has also introduced the idea of “elasticity” in economics. As Keynes has said, “in the provision of terminology and apparatus to aid thought I do not think that Marshall did economists any greater service than by the explicit introduction of the idea of ‘elasticity’”. Marshall was the first to introduce this concept. “Elasticity of demand” refers to proportionate changes in the demand of a commodity according to the changes in its price. Truly speaking, this idea of elasticity of demand opened a wide field for investigation. “It is virtually”, says Keynes, “the earliest treatment of a conception without the aid of which the advance theory of Value or Distribution can scarcely make progress”

While discussing the importance of wants, Marshall says that wants lead to increased exertion, which promotes physical and moral health. “There is”, says Marshall, “intense pleasure in the ardent pursuit of any aim, whether it be success in business, the advancement of art and science or the improvement of the condition of one’s fellowbeings”.

The Law of Diminishing Return. According to Marshall the definition of the law of diminishing returns as given by Ricardo was not properly worded. He defines the law as under. “An increase in the capital and labour applied in the cultivation of land causes, in general, a less than proportionate increase in the amount of produce raised unless it happens to coincide with an improvement in the arts of agriculture”. He agreed than an improvement in the arts of agriculture could raise proportionate return but this increase would only be temporary.

He has frequently used the terms like the marginal doses, the marginal returns, the margin of cultivation, etc., and has held that the marginal doses of labour and capital are not necessarily the lowest in time. His treatment of the law of diminishing returns is based on the belief that the elasticity of nature’s return to labour and capital varies from soil to soil and crop to crop. Fertility of land is not absolute and it is related to time and place and it may change with the change with the change in circumstances. According to him, the law is equally applicable to river fisheries, mines and quarries.

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The Representative Firm. Marshall has also been responsible for introducing the idea of ‘representative firm’ in economic theory. He defines a ‘representative firm’ as “the one which has had a fairly long life, and fair success, which is managed with Norman ability, and which has normal access to the economies – external did internal, which belong to the aggregate volume of production, account being taken of the class of goods produced, conditions of marketing them and the economic environment generally”. The representative firm, for Marshall, is an average firm which stands at the average of development, in reference to external and internal economies. By external economies he means those economies which are dependent on the general development of the industry and the internal economies are those which are available within the organization itself owing to the resources, organizational efficiency and managerial efficiency of the individual firm.

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UNIT -IV WELFARE ECONOMICS

Welfare Economics (as contrasted with price economics) seems to be commonly used to cover the general analysis of economic policy or certain general economic effects or criteria of economic policies, whatever, part the term or concept welfare has to play therein”. Boulding also feels that it is almost as difficult to define the boundaries of Welfare Economics as it is to define Economics itself. Sometimes, a discussion of economic policy which invokes the standards of judgement is included in it; and sometimes, it is narrowed down just to deal with “certain highly technical discussions of the commodities for a social optimum”. Welfare Economics has been defined as “the branch of economic science that attempts to establish and apply criteria of property to economic policies”. Welfare economics which started from Alfred Marshall has been developed by writers like Henry Clay, R.G. Hawtrey, Edgeworth, Hobson, Pigou and Pareto. It has been studied on two lines-one adopted by Pigou and the other by Pareto-the former is generally known as (Old Welfare Economics) and the latter as New welfare Economics.

ARTHUR CECIL PIGOU (1877-1959) Alfred Marshall’s favourite pupil-Pigou succeeded his master at the University of Cambridge in 1908, retiring in 1943; and until the publication of Keynes’ General Theory (1936), remained the outstanding economic theorist in England. Throughout his teaching career he continued to emphasize the Marshallian doctrines; and his lectures on economic principles were somewhat stereotyped, yet he devoted his energies to the exploration and development of a new branch of economic science-Economics of welfare. He did not mingle with his fellow economists; and was seldom seen at conferences; but being a good speaker, created an excellent impression on his audiences. He served on three committees-the Cunliffe Currency Committee (1918), the Royal Commission on Income Taxes (1919) and the Chamberlain Committee on Currency (1924).

In 1912, he published his Wealth and Welfare which opened a new chapter in economic literature; and was later revised and expanded into The Economics of Welfare (1920) undoubtedly a remarkable treatise. His other publications are: Essays in Applied Economics (1923), A study in Public Finance (1928), Industrial Fluctuations (1926),

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Economics of Stationary States (1935) , Socialism Vs. Capitalism (1937), Employment and Equilibrium (1941), The Veil of Money (1950), Essays in Economics (1952), Alfred Marshall and Current Thought (1953).

Pigou believed that economic welfare could be increased by adopting the policy of discriminatory taxation; and suggested that the state should protect the interests of the future in some degree against the effects of irrational discounting, and peoples’ preferences for themselves over their descendants. Economic welfare could be

increased, as he argued, by adopting other ways also, the most important being the transference of purchasing power from the rich to the poor. Any transference of moneyincome from a relatively rich man to a relatively poor man (of similar temperament) intense He

must increase the total amount of satisfaction because it enabled the mere wants of the poor to be satisfied

at the cost of less intense wants of the rich.

elaborated this point by observing-“Any cause which increases the absolute share of the real income in the hands of the poor, provided that it does not lead to a contraction in the size of the national dividend from any point of view, will, in general, increase economic welfare”.

In order to maximize economic welfare Pigou suggested fair competition among the industries operating under the laws of decreasing and constant returns, and State intervention in case of those working under the law of increasing returns. He also examined in detail the pros and cons of state intervention in monopolies, state

operation of industries, co-operation, settlement of disputes, redistribution of incomes, conditions of work, etc.

LEON WALRAS (1834-1910) Walras, a French economist was a contemporary of Jevons, and Menger. He started his studies for the profession of engineering but later on abandoned and turned into a journalist. He joined as professor of political economy at the University of Lausanne in 1870. His chief works are: Elements of pure Economics, Theory of Exchange, Theory of production, Mathematical Theory of Social Wealth, Studies in social Economics, and Studies in Applied Economics. As is evident from the titles of his works, he held that the study of economics should be divided into three parts, i.e., pure economics, applied economics, and social economics. Like Gossen, he wanted to develop economics into a

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pure and abstract science. He may be called the originator of the general equilibrium economics since he was the first to make use of mathematical analysis in the field of economic equilibrium.

He criticized classical economists for not developing a social science in the true sense of the term. His work was more systematic and detailed than that of Cournot, and in this respect he may be treated as the true founder of the Mathematical School. He actually brought more influence to bear on the modern Mathematical school than Jevons.

The Doctrine of Marginal Utility. Quite independent of Jevons and Menger, walras enunciated the doctrine of marginal utility in 1874. His ideas are contained in his book entitled Elements of Pure Economics which is divided into two parts-the theory of exchange, and the theory of production. Like Jevons and Menger he holds that exchange value is dependent on utility and supply. He has used the term ‘rarete’ which means the same thing as final degree of utility of Jeavons or value of the last atom of Gossen and marginal utility of the modern writers. Exchange values are proportional to ‘rarete’. He has further explained that value of one commodity depends upon the price of other commodities. In other words, in a given market where many commodities are being bought and sold, if the utility and the quantity of want in respect of one or more exchangers varies, so that the ‘rarete’ varies the value of price of the commodity in relation to other commodities will also vary. He has explained his view mathematically and has attempted to prove that the problem of mutual determination of prices of any number of commodities at a single time can be solved if adequate data were available.

He has further tried to prove that for this purpose the same data which are ordinarily used by economists in their price discussions could be used and number of equations equal to the number of ‘unknowns’ in the problem, can be set up. Hence, theoretically, the problem of the mutual determination of prices of a given number of commodities at a particular time is a determination problem in terms’ of mathematics. So, for a

mathematician it is a happy position and theoretically he can be satisfied with it, but Walrus had himself realized and acknowledge that for setting up such equations adequate data were not available and even if the data were not available and even if the data were available it was beyond the computing forces of mathematics to solve all the equations set up to show the mutual determination of all prices in a big modern market.

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The data which Walras wanted was in regard to the quantity of the commodity which an individual would buy in the market at each possible price.

In the field of production, he has analysed the problem of determination of the price factors of production in a similar way as he tried to solve the problems of determination of the value on the opportunity-cost principle and the modern theory of marginal productivity. His treatment of the subject of capital was not satisfactory.

VILFREDO PAREDO (1848-1928) Pareto, a noted Italian engineer and economist, was the direct successor of Walras at the University of Lausanne. He started his career as an engineer and after 20 years of practice in the profession he turned into an economist. His approach to economics was a combination of his knowledge of mathematics and physical science on the one hand and a keen interest in the current economic problems on the other. His chief contribution of economics was the application of mathematical methodology to the analysis of utility. But more than an economist he was a sociologist and his later works emphasized the unity of society.

Pareto has analysed wants on the one hand, and obstacles to their satisfaction on the other. His analysis is quite subtle. He had drawn a series of combinations of articles of consumption giving each an index. He holds that once an individual has chosen a particular combination, the act of exchange can be expressed with mathematical exactness. And if a multitude of such choices are taken, the overall process of exchange can be expressed mathematically. Pareto has divided his analysis of obstacles to the satisfaction of wants into two parts: the first consisting of competing desires, quantitative limitations and other limitations inherent in the social environment, and the second relating to the changes in price just before and after the exchange of commodities.

Since the economic phenomena are independent, he logically concluded that everything apart from the want itself was an obstacle in the way of satisfaction of wants. It will be observe that pareto had all along been attempting to do away with the subjective utility aspect of economics but he could not quite succeed. The psychology of the individuals, the impossibility of the measurement of the individual desires continued to bother him.

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In the field of distribution, Pareto’s chief contribution lies in inserting the concept of marginal productivity into Walras’ theory of distribution. He also introduced the concept that the factors can be variable or fixed, independent or interdependent. Regarding personal income distribution, his views are quite interesting although these cannot be said to be accurate. On the basis of some statistical studies, he concluded that there was a high degree of constancy in income distribution in various countries at different times.

Utility was not measurable and that its substitution with scale of preferences had not been anticipated in the work of Cournot, had also been foreshadowed in the works of Fisher and Cassel. Similarly, the concept of ‘indifference curves’ was used by Edgeworth as early as 1881. His views regarding pure economics were also absolutely changed. “Pure Economics”, he says, “gives us no truly decisive criterion for choosing between a social order based on private property and socialism.

KNUT WICKSELL Neo-Classicism: Stockholm School also known as the Swedish School was founded by Knut Wicksell.E. Lindahl, B. Ohlin and Gunnar Myrdal are the most illustrious members. The school had its influence in the Scandinavian countries. It was represented by Frisch in Norway and Zeuthen in Denmark. Wicksell also influenced the thought of Von Hayek and that of Keynes and Hicks in England.

KNUT WICKSELL (1851-1926) Wicksell was born in 1851. He took up his degree in Mathematics in 1885. The award of a stipend by the Loren Foundation enabled him to visit England, France, Switzerland, Italy and Germany, where he made a thorough study of the economic theories of Mill, Menger, Bohm-Bawerk, etc. He took his Ph.D. degree in 1895. In 1900 he was

appointed as assistant professor at Lund University in 1901 he too over as professor of economics and public law in the same university and retired in 1916. Wicksell contributed many articles in Swedish, German and English journals. His chief works are Value, Capital and Rent (1893), Studies in Finance Theory (1896), Interest and Price (1889), and Lectures on political Economy, translated by L. Robbins in English, Vol. I in 1934 and Vol. II in 1935.

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Wicksell’s thought was greatly influenced by the depression and the sharp decline in prices during 1873-1895. In 1898 his books entitled Interest and Prices appeared in which he has coordinated the theories of price and interest with theory of the value of money and has emphasized the part played by credit in the price movements. Wicksell was influenced by the Austrian economists, chiefly Bohm-Bawerk and Walras and the English economists like Wicksteed, Edge-worth and Marshall.

He had a good understanding of classical and neo-classical thought. His chief contribution lies in the treatment of economic life, in terms of marginal utility and in the use of mathematical equation, occasionally punctuated with his views on production, capital and population. He attempted to present a synthesis of the marginal productivity analysis of the Austrian School and the general price equilibrium theory of the Lausanne School.

Wicksell’s Economic Views. Wicksell developed his theory of value and distribution around the theory of marginal productivity. While applying his theory of general marginal productivity he has assumed that all the factors of production are so employed that no economies from a large scale of production are possible. His theory of capital and interest forms the main part of his thought. Wicksell has analysed the relation of money rates and the natural rate of interest and also the effects of this relationship on the general price level. According to him, capital is “a coherent mass of stored-up labour and save-up land”. After recognizing the importance of the time element, he has taken up “period analysis”. He assumes that the capital saved during the preceding year helps in production during the current year and, therefore, for obtaining the advantages of capital’s use, a corresponding part of the current year’s resources must be saved up for being used during the next year. For him, interest is the “marginal productivity of waiting”.

It is the difference between the marginal productivity of saved-up labour and land and the marginal productivity of currently used labour and land. He says that the current labour and land are relatively in abundance while the saved-up labour and land are not and therefore, the difference in the marginal productivity of the two types of labour and land is interest. The interest may disappear if the difference disappears but this will

never happen since the falling rates of interest will be followed by longer investment period and increased capital values which will counteract the decline between current

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and future goods. According to Wicksell, a high rate of interest stimulates saving and a low rate discourages it.

This brings us to his views on the natural rate and the market rate of interest or the bank rate of interest. The natural rate of interest is the rate “at which the demand for loan capital and the supply of savings exactly agree and which more or less corresponds to the expected yield on the newly created capital”. Thus, the natural rate is one which equalizes savings and investment. It will thus be observed that it is just the marginal productivity theory of capital propounded by Bohm-Bawerk. The market rate of interest is the price of money determined according to the Walras formula. tends to equalize the natural rate, but it may be below or above it. The market rate

If it is lower, the savings would be discouraged, consumption will rise, investments would be stimulated, ultimately leading to a rise in the price level, since it would not be profitable for the entrepreneurs to make investments. He, therefore, suggests that the market rate may be kept below the natural rate and prices be kept rising, as long as the supply of loanable funds is supplemented by creating credit, or by dishoarding.

Savings and Investment. Regarding savings and investment, Wicksell does not agree with Walras that with a fall in prices the purchasing power and hence, the effective demand increases. He believes that since the expenditure of one is the income of another, the aggregate purchasing power would always remain the same. By normality he means that aggregate income is equal to aggregate spending, that income not spent consumption is spent on capital and the price level remains constant. When conditions are not normal, savings would not be equal to investments. The decision to invest does not only depend on voluntary savings. Since decisions to save and invest are taken by different people, amount of savings may be more than the investment.

In such a situation income would be reduced, consumption would decline and prices would fall. If the investments are more than the savings, the prices would rise. He

suggests that these situations would be controlled by manipulating the bank rate, i.e., by keeping the market rate below or above the natural rate so that investment my experience a boost or a fall, prices may rise or fall, finally leading to a rise or fall in the market rate. This is what is known “the cumulative process” of Wicksell. The biggest

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problem for Wicksell was why a fall in prices in one section of the economy is not made up by a rise in another sector? In this connection he said: “clearly the fact is here overlooked that the purchasing power which on this assumption would be reduced in the case of the sellers of the former goods would be increased to a corresponding degree in the case of the buyers. If the latter have only to offer a smaller part of their income in order to satisfy their need for the goods or classes of goods in question, then they have a correspondingly greater amount left for their demand for other goods, and it is not impossible that these other goods .

Would rise in price and thereby perhaps compensate for the fall in price of the cheapened goods”. He has emphasized the effectiveness of monetary control for the stability of the price level. He asserted that in other spheres, circumstances like

technique, natural conditions; individual or social differences play a role which is beyond the survey and control of the science. But so far as money is concerned, everything is determined by human beings, i.e., statesmen and the economists and hence the bank rate policy is the most effective weapon for keeping the price level stable. It may be said that in spite of his optimism about the effectiveness of monetary control his theory was incomplete in many respects.

Trade Cycles. According to Wicksell, a trade cycle is the outcome of the cumulative process of unstable disequilibrium. The trade cycles appear because the technical progress does not increase in perfect simultaneity with the increase in population.

Wicksell influenced the writings and thought not only of his contemporaries, but also of the economists of a later generation in Sweden, Central Europe and Italy. He was a

source of inspiration to Hayek, Keynes and Hicks. Wicksell’s technique of period analysis was successfully applied and expounded by Lindahl in 1930. His statement of the

marginal productivity theory is better than that of his successors and “one of the most satisfactory available”. “His craftsmanship”, says Bell , “is at its best in the clarity of expression showing the inter-dependence of economic factors”. Wicksell was a true

scientist and he never claimed to revolutionise the economic theory of its terminology. He, like Marshall, succeeded to a great extent in synthesizing the ideas of different schools of thought. His chief contribution lies in the development of a theory of trade cycle in reference to the technological progress and population growth.

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REACTIONS AGAINST NEO – CLASSICISM (J.B.CLARK, FISHER, TAUSSIG) America could not produce many economic theorists, till the theorists, till the thirties of the present century, obviously, because there were not many centres providing training in economics as there were in England and Germany. Whatever progress in economic theory has been made during the last four decades has been chiefly due to persons like Machlup, Hayek, Schumpeter and others who, under the force of circumstances decided to develop economic thought in America instead of strengthening the foundations of economic theory in Europe.

In the earliest stages, economics was treated chiefly as a part of the moral philosophy. It was only after the Industrial Revolution that the development of academic economics took place, chiefly owing to the growing awareness of the problems of finance, production and distribution. The study of economics as a science did not appear to have started earlier than 1801. These were only small beginnings and it was only about 1870 that some of the economic problems started attracting serious attention of the economic academicians. It was in this period that many American universities started separate

departments for the study of political economy.

About the development of economics in the earliest stages in America. We shall now take up the economic ideas of economists of repute like Clark, Fetter, Patten, Davenport and Fisher who may be regarded as leaders of the American economic thought. Clark, Fetter, Fisher and Patten may be called as the subjectivists in so far as they emphasized the subjective aspects of value while Professors Carver, Ely and Taussig may be regarded as the objectivists in so far as they emphasized the part played by cost of production in the determination of value. Fisher was the chief exponent of ‘mathematical economics’.

JOHN BATES CLARK (1847-1938) John Bates Clark was one of the most outstanding economists of America. In the field of economic theorization in America he was the first. He developed the marginal utility theory, with some originality and his analysis of the marginal productivity in connection with the determination of the shares of the factors of production under static conditions is quite interesting. He graduated at the age of 25 in the year 1872.
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He studied at

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Heidelberg University Under the able guidance of karl knies. He came back to the United Stated in 1875 and started teaching economics at Carleton College, Minnesota. He then moved to New England-first to smith College and then to Amherst College. Finally he joined the Columbia University in 1895, where he continued until his retirement in 1923. In Germany, he received training in the use of the historical method.

This was not exceptional with Clark, since those who went to Germany, namely, Seligman, Ely, Taussig and others all turned into ardent advocates of the historical method. At the time of founding the American Economic Association they had declared that, “while we appreciate the work of former economists, we do not look so much to speculation as to the historical and statistical study of actual conditions of economic life”. But they could not maintain this spirit for long. Professor Dunbar started the Quarterly Journal of Economics in 1916 and emphasized the importance of the speculative and theoretical discussion.

Clark and Simon Patten were from the younger group, who, while advocating the usefulness of the historical method, were in sympathy with the deductive method, By nature, Clark was a humanist. He was a liberal theorist. His liberalism went to the

extent of making him vocal for free trade. He died on March 21, 1938. His chief works are The Philosophy of Wealth (1885), The Distribution of Wealth (1899), and The Essentials of Economy Theory (1900).

Since Clark was brought up in a religious atmosphere, his first publication entitled The Philosophy of Wealth is a clear manifestation of his religious outlook. In this book, he has criticized the classical concept of economic man. According to him, the society is not a conglomeration of economic men, but an organism. He held that capitalist competition was dangerous and therefore institutions must be developed on co-operative lines so that they may compete with the capitalistic institutions. He did not agree with the classical view that labour was the sole source of all wealth and that all economic activities were motivated by self-interest. To quote him: “Man‘s toils not because he always produces wealth but because wealth naturally follows labour…nature subjected and appropriated wealth..

Man’s subjection of nature is labour”. Regarding the relation between value and utility, he held that value was the quantitative measure of utility and both were inseparable.

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The Distribution of Wealth earned more reputation than his first book. In his analysis he has assumed the static conditions and state of perfect competition. He has analysed the problems of distribution of wealth with an ethical bias, since his objective was to seek the laws of distribution so as to find out whether man was getting the fruits of his labour. In any case, he was not prepared to listen to anything against the institution of private property. His entire analysis presumes the operation of the laws of diminishing utility and diminishing returns under stationary conditions.

Furthermore, he has assumed that both the production and consumption functions are governed by the principle of marginal utility. He regarded land just as a type of capital goods. For him, therefore, there were only two problems in the field of distribution to be studied, viz., the determination of wages and the determination of interest.

He held that the quantity of a particular factor of production in use can be increased only up to a point where the cost of the product of the last unit will be equal to the cost of that unit. The wages of a worker will always be equal to his marginal product and,

hence, he concluded that exploitation of labour was impossible since it always received what it was worth.

Clark has followed in the footsteps of Fisher and Bohm-Bawerk, in treating the problem of the determination of interest. Interest is the result of the preference that a man gives to the present satisfaction over the future satisfaction. The rate of interest, to him, is determined by the marginal productivity of capital. In this connection, he has drawn a distinction between capital and capital goods are all material goods which lose their existence in the process of creating value, while capital is a flow of income which determiners the rate of interest at the margin. It may be mentioned that while his entire analysis of the distribution of wealth is based on the assumption of stationary state, he has dealt with the problem of profits under dynamic conditions as well. According to

him, the rate of profits under static conditions is zero since the entrepreneur only performs the managerial functions, which are a special form of labour, but under dynamic conditions an entrepreneur has constantly to change and adapt his process of production to the changing conditions. Profits, thus, are a sort of reward paid for the skill of the entrepreneur in making necessary changes according to the changes occurring in the society. Despite his treatment of the economic dynamism he believed

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that “Static forces set the standards and dynamic forces produced the variations”. According to Clark, there were five types of changes which generally occur in society: increase in the efficiency of labour and capital. He was quite convinced that all these changes would lead to the betterment of the society, since the growth of population would be outpaced by the growth of capital owing to the desire of the people for maintaining their social status. Again, the wages would increase, leading to an increase in the efficiency of the workers and ultimately the amount of product.

Labour and capital were the two fundamental factors of production. He treated land as a special type of capital goods, since it was merely a sort of fund, completely mobile.

As would be seen, his most notable contribution was in the field of marginal productivity, distribution and capital. He appears to be more intelligent in the field of distribution and capital. His marginal productivity theory of wages is full of deficiencies. First, it can be true only when the supply of labour is fixed and the conditions of competition are perfect. Secondly, it is one-sided in the sense that it treats of the demand and neglects the supply side. The theory thus is hardly in conformity with real life. He has also been criticized for identifying land with capital and for not recognizing the existence of rent. Hobson and others have questioned the validity of the “dosing” method of isolating the specific product of a given factor. Professor Haney finds philosophical consistency in his thought. “His social point of view, the optimism and his minimization of the limitations inherent in the differences in land are manifestations of a pretty thoroughgoing idealism”. In spite of the Weaknesses that are found in his analysis, he has been recognized as the leader of American marginalism. Professor Bell recognizes him as the greater American theorist.

IRVING FISHER (1867-1947) Fisher was one of the few outstanding American economists who have contributed to the development of monetary theory and mathematical economics. He was born in 1867. He got his doctorate degree in mathematics, which very well goes to prove his interest in mathematics, and the application of mathematical formulae and equations to economic problems. Like other economists, he based his analysis on perfect

competition, stationary state and freedom of choice. He was the first economist in the United States who made use of the concept of indifference curves. The influence of mathematics was so great on him that at the time of the translation of Cournot’s books

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on mathematical economics into English, he wrote the introduction and prepared an elaborate bibliography of mathematical economics.

Despite his keen desire that more and more and economists may make use of the mathematical method, he had few followers. On realizing his failure he himself started writing on non-mathematical topics. Fisher wrote many books: Mathematical

Investigations in the Theory of Value and Prices (1892), The Nature of Capital and Income (1906), The Rate of Interest (1907), Elementary principles of Economics (1910), The Making of Index numbers (1922), The Money Illusion (1928), Theory of Interest (1930), Booms and Depressions (1932), stable Money (1934) and 100 per cent Money (1935).

His views. Fisher realized that utility could not be measured, and therefore assumed that a consumer will arrange his consumption in such a way that the marginal utility of each commodity purchased from one unit of money would be equal. Price, thus, is determined at a point where the marginal utility and marginal cost of production would be equal. His theory is more concerned with the determination of price rather than of value. In his analysis, the value of each commodity is dependent on the values or prices of all other commodities. His views regarding value and price are contained in his book entitled Mathematical Investigations in the Theory of Value and Prices.

According to Fisher, capital includes all wealth, even the human resources. Income is merely the flow of goods and services emanating from the use of capital. Thus, capital and income are the two aspects of the same problem. From his analysis of income and capital, he proceeds to explain the determination of interest. If the flow of goods and services remains constant, the value ratio of income to the capital will be the same as the rate of interest. According to him, the rate of interest depends upon the “time preference” of individuals for the present over future goods. His explanation of interest was based on two assumptions, viz., (i) the flow of incomes their size and character; (ii) the character and habit of individuals. He has, however, not explained the flow of incomes. In any case Fisher deserves credit for establishing relationship between the value of money and the rate of interest.

Fisher has made outstanding contributions in the field of monetary economics. According to him, monetary individualism was a curse and inflation, whatever be its source and

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cause, i.e., paper money or gold, or increased supply of gold, is ruinous, and disastrous. Similarly, deflation is also an evil. In his book, entitled Stabilising the Dollar, he has attempted to prove that the salvation was only in the stabilization of the price level. He proposed a scheme of compensated dollar, according to which, the gold content of the dollar would vary according to the changes in the price level, thus, keeping the purchasing power of the dollar constant.

Lastly, Fisher was responsible for reviving interest in the quantity theory of money. He presented the theory in the form of an equation, so widely know to all of us, i.e., MV’ = MV’ = PT (M is money in circulation, V is the velocity of circulation of money, M’ is bank deposits and V’ velocity of circulation of deposits, p is the general price level and T the total volume of transactions). According to this equation, the general price level and the quantity of money move in direct proportion, subject to condition that no changes take place in the bank deposits, velocity of circulation of money and the volume of transactions.

Fisher’s thought suffers from internal inconsistencies and he deals with variations of corelations with such freedom that the entire analysis appears to be far away from the realities of life.

FRANK WILLIAM TAUSSIG (1859-1940) Life and works. Professor Taussig is one of the well-known American economists. He graduated from the Harvard University in 1879. He visited England, Italy, Austria and Switzerland and studied Roman law and Political Economy at the University of Berlin. On his return to Harvard in September 1880 he joined the Law school. He got the Ph.D. degree in 1883. In 1886 he was appointed as an Assistant Professor of Political Economy at the Harvard University. In 1892 he was appointed as Professor. He received the D.Litt. degree from the Brown University in 1914 and from the Harvard University in 1916. He also received honorary degrees from a number of Universities: LL.D. from the North Western University in 1920 and from the Michigan University in 1927; Ph.D. from the Bonn University, 1928; and D.Litt. from the Cambridge University, in 1933.

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Professor Taussig was associated with a number of governmental bodies; as a member of the Price Fixing Committee on the War Industries Board during World War I; as a member of the sugar Equalisation Board; as Chairman of the Tariff commission in 1916 and as a member of the Advisory Committee of Peace. He was the editor of the Quarterly Journal of Economics from 1896 to 1935. He had nearly 60 publications to his credit. His most important works are: Protection of young Industries As Applied in the United States (1883), History of the Present Tariff (1885), The Tariff History of United States (1896), Principles of Economics-2volumes (1911), some Aspects of the Tariff Question (1915). Free Trade Tariff, Reciprocity (a collection of essays) (1920) and International Trade (1927).

On Methods of Study. Owing to his close association with the Historical economists, Taussig had a fondness for the collection of statistical data and historical facts, although he was not against the use of the deductive method of study. This fact is very well evident from his analysis of trade and tariffs. As a matter of fact he also believed in integrating the theoretical and empirical data, and not only in the illustration of general principles with the help of historical facts.

On value. On the subject of value his analysis is unique in so far as he accepts the effectiveness of the role played by the speculators. According to him the fundamental effect of mercantile speculation is to promote the establishment of the equilibrium between demand and supply. The daily market price, consequently, conforms to the seasonal

market price, and therefore, the whole seasonal supply is disposed of without any difficulty. He holds that marginal utility is the main factor which matters in the

determination of value.

On Rent. Taussig has accepted the Ricardian theory of rent. According to him rent arises, “because of the comparatively high price which must be paid to bring out the total supply”. He believes that rent arises because lands are non-uniform in quality and are limited in supply. To quote him, “rent arises because of the limitation of the better sources of supply, because of differences in the amounts brought forth by equal quantities of labour”. He was however doubtful regarding the exact assessment of

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economic rent since he thought that it was difficult to find out how much yield was owing to the “original and indestructible powers” and how much owing to the labour of man. He found that the position of the rent of urban land was entirely different. According to him, there are various factors upon which the urban rents depend, for example, site of land, means of transport and communications, proximity to the market, etc.

On population. Taussig accepts the Malthusian Theory of Population, and holds that the tendency of population to increase must be checked, since the growth of population does not only affect the distribution of the national income but also creates problems in economic and social spheres. He believed that the people of the lower strata multiplied too rapidly. He, therefore, considered it highly essential to restrict the increase of the number of the workers. He declares that “a limitation of numbers is not a cause of high wages; but it is condition of maintenance of high wages”.

Taussig was in favour of the organization of labour unions, since these unions strengthen the bargaining power of the workers, reduce their disabilities and immobility’s and secure for them fair wages. But he said that these unions are good so long as they increase the bargaining power of the workers and protect them against exploitation, but they are used to hamper a particular industry or industries in general through the organization of strikes. He treated profits as a form of wages and declared that wages are determined by the discounted marginal net product of labour.

Taussig has presented as integrated theory of international trade, comparative costs and the effects of money and credit. He has substituted money costs for comparative labour costs, in the classical theory of international trade. He felt that different countries of the world, the money costs interpretation would fairly conform to the labour costs interpretation. He argued that trade would not be affected very much if the disproportion in money costs and a labour cost was approximately the same among different countries. He also made a study of the conditions of trade under the system of paper money and the relation of wages in the export industries to the movement of exports and their effects on the national income.

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Taussig was known all over the world as a brilliant teacher. Schumpeter has called him as the American Marshall. He regarded his Principles of Economics as “an excellent pedagogic performance, embodying as it did the mature wisdom of a supremely able teacher”. In fact, he has restated the doctrines of the Classical economists in the light of the doctrines of Bohm-Bawerk, Fisher and others. He was a source of inspiration to economists of the next generation. He held Wagner in high esteem and considered Ricardo as the greatest of all economists.

INSTITUTIONAL SCHOOL Veblen, Commons and Mitchell formed the older Institutional School, while a host of writers of the younger generation, namely W.E. Atkins, Tyson, S.H. Slitcher, W.H. Hamilton, A.B. Wolfe, R.G. Tugwell etc., comprise the younger school. The older school is chiefly concerned with the description of economic life institutions and instincts pointing out the maladjustments which they may find. They do not set any goals and would like the social evolution to take its own course. Their approach is essentially Their chief

critical and negative. The approach of the younger school is positive.

objective is to direct social evolution in such a way that social institutions and human activities may move simultaneously. They also seek to replace old economics with new economics. Despite their extreme optimism they could not wholly succeed in their mission. Nevertheless, they carried out important researches in the field of sociology, history and statistics, and succeeded in arousing a permanent interest in social reform. In short, the chief concern of the older school was merely to analyse and describe economic life as is and as it has been thus, pointing out the chief weaknesses of the economic system while the younger school was essentially concerned with correcting the maladjustments in the economic system with the help of social control over man-made institutions.

Characteristic Features of Institutionalism: According to Professor Haney, the following are the chief features of institutionalism. (i) Group behaviour and not price is considered to be the central theme of economics. (ii) It recognizes that human behaviour is constantly changing an d that economic laws should always be relative to time place. (iii) Emphasis is given to customs, habits and laws, as the modes of organizing economic life. (iv)It holds that important motives governing individual action cannot be measured.
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(v) Maladjustments in economic life under existing institutions are normal occurrences and are not to be treated as a departure from normal equilibrium.

Thorstein Bunde Veblen (1857-1927): Veblen was born on July 30, 1857, in Wisconsin. He descended from a family of

farmers. He entered Carleton College in 1877, at age of 20 and graduated at the age of 23. He studied economics under the able guidance of J.B. Clark who always held him in high esteem. Chiefly interested in philosophy, he jointed for his graduate study, the University of John Hopkins and then, the University of Yale, from where he took his doctorate degree in philosophy on Ethical Grounds of a Doctrine of Retribution. He tried to get a teaching post but could not succeed and hence remained unemployed for seven years. In 1881, he joined the Cornell University again as a graduate student, where he earned appreciation at the hands of professor Laughlin on the publication of his essay, entitled:

“Some Neglected points in the Theory of Socialism”. Professor Laughlin took him along as a graduate fellow, on his new appointment as the head of the department of Economics in Chicago University in 1892. Being an eccentric he could never achieve a high position and remained as assistant professor throughout his life. He was the editor of the journal of political Economy for about 10 years. During his stay at Chicago, he produced some of his most famous works, namely The Theory of the Leisure Class and The Theory of Business Enterprise. Wesley Mitchell and Robert Hoxie were the noted American economists who were influenced by his thought. Veblen earned respect and became well known after the publication of the first of the two books mentioned above. He unfortunately did not have a very successful social and family life. He had a great weakness for women and this made him to leave Chicago and join the Stanford University. After some time he shifted to the University of Missouri on an invitation from Professor Davenport. There also he found himself to be a misfit and on the departure of Davenport, he had to leave the university in 1916. During World War I, he jointed the department of Agriculture in Washington and later on, as editor of Dial Magazine. At the time of his death on August 3, 1927 he was one of the members of the faculty of new school for social Research.

Veblen was a prolific writer. Among his works are: The Theory of the Leisure Class (1899), The Theory of Business Enterprise (1904), The Instinct of Workman-ship and

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the State of Industrial Arts (1914), The Vested Interests and the State of the Industrial Arts (1919), The Place of Science in Modern Civilisation (1919), The Engineers and the price system (1921), Absentee Ownership and Business Enterprise in Recent Times (1923), and Essays on Our Changing Order (1924).

His Economic Views : Veblen was an inspired critic. He was highly critical of the theories propounded by the marginalist school. His economic views are contained in his articles, published in the Quarterly Journal of Economics, and Journal of Political Economy in which he has been critical of the marginal utility economics, the Historical School and Socialism. And it is only through his criticisms of the existing economic theories that he has contributed to the development of economic thought. He was critical of the existing economics

because, according to him, it was not an evolutionary science. Similarly, he holds that the laws of classical economics are based on a wrong conception that there is a natural order in which maladjustments are automatically corrected.

Importance of Institutions. Veblen considers the entire civilization as “a scheme of the institutions”. He believes that it is the human behaviour which ultimately develops into an institution.

Veblen and the Historical School. Veblen had great admiration and respect for the younger Historical School. In his opinion, the older Historical School did not produce anything, since it was exclusively devoted to the creation of historical facts, without integrating them into a comprehensive system of theory. The chief cause of his admiration for the younger Historical School was that these historians had traced the origin and development of economic institutions. In this respect his ideas were more or less similar to those of the younger Historical School.

The Theory of the Leisure Class. Veblen’s book entitled The Theory of the Leisure Class contains his criticisms of the concept of economic man. Veblen has traced the evolution of one set of economic institutions and has explored the different aspects of monetary practice. Veblen has started his analysis by recognizing the leisure class as an ancient institution. In almost every society men of the upper classes are exempted from industrial occupations and are given employments to which a degree of honour is attached. This goes to indicate that they are superior in rank. In our present day society,

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the leisure class is the propertied class. According to him this class is still aggressive and that ‘pecuniary emulation’ or competition creates in them a desire to make money rather than to provide the necessities of life. These emulations or imitations are the

most powerful instincts. Emulation may appear in the form of waste. Veblen regards the activities of the propertied class as waste because they do not serve human well-being. Moreover, the financial success of one belonging to the upper class is demonstrated by one’s reckless expenditure. Thus, the rich class goes on spending money carelessly without caring that there are people in the society who do not have even two square meals a day and who also like to spend the same way. With its emphasis on war government, etc., the culture of the rich is still savage. In our society, there has developed a class which does not have enough money but which is faithful to the rich class and is always subservient to it. This class much larger in size supports the leisure class but is unable to fulfil its own basic needs for subsistence. Veblen’s analysis appears to be more or less similar to that of Marx.

J.R. Commons: John Roger Commons was born in 1862 in rural Ohio. In spite of his rural surroundings he could not be a prey to intellectual sluggishness. Owing to the effort of his parents, He belonged to an ordinary family. Owing to the financially weak position of his father, he acquired first hand knowledge of social and economic problems and realized the necessity of solving them. He first entered the Oberlin College and then jointed the John Hopkins for his graduation. He could not succeed in several examinations merely

because the curiosity to understand the working of practical things always stood in his way. He, however, drew inspiration from his teacher, Ely, and gained the knowledge of the new economics, of which Ely was the exponent. According to Ely, the competitive system was incapable of raising the standards of living. Ely also advocated the use of inductive method for the study of economic problems. As true disciple of Ely, Commons started advocating for the inductive approach.

Commons started his teaching career at Wesleyan College. He started arousing curiosity among the students for the study of the problems of the day which could not obviously be tolerated by his masters, and had to leave after one year’s service. He joined the Indiana University. He published his book, entitled The Distribution of Wealth, which was more or less in tune with the neo-classical thought. His interest in the political and social problems of the day, however, continued and hence his advocacy for practical

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Christianity, proportional representation, civil service, state-owned enterprises, etc. he then accepted the Chair of sociology at an invitation from the Syracuse University where he covered a wide range of subjects from anthropology to political economy. In this University too, commons was not very much concerned with his lectures of courses of study. He was more interested in giving his students an idea of the practical working of prisons, reform schools, co-operatives, etc. Obviously, it developed into the students an insight to make a comparative study of theory and practice. At Syracuse he published a series of articles under the caption of ‘A Sociological View of Sovereignty’. In these articles he criticized the institution of private property, even going to the extent of saying that the Christian Colleges were being controlled by capitalists and not by religion. The criticism colleges were being controlled by capitalists and not by religion. The criticism of the capitalistic system led the big businessmen to withdraw their support from the university, and to the abolition of the Chair of Sociology. In 1899, Commons had to give up the academic career.

Commons like Marx, believed in existence of class conflict, but he was neither a socialist nor a communist. He did not believe in the existence of the type of conflict, which Marx had suggested. His analysis of class conflict is more akin to modern conditions.

Commons complained against the growing dissensions among the economists of the world. He was also not happy on the on the working of the economic system prevailing in different parts of the world. He found that under modern economic conditions, liberty was suppressed and there was no place for intellectuals, like artists, engineers, scientists, etc. But he was more worried about the future of middle classes. In his words: “It is doubtful whether, under modern conditions a decision can be reached as to which is the better public policy-whether the Communism of Russia; the Fascism of Italy, or the Banker Capitalism of the United States. In the two European systems and others that are occupying them, liberty is suppressed and the intellectuals, who include artists, inventors, scientists, editors, professors, are eliminated, not merely because they are physically suppressed but because individual originality and genius cannot thrive in a nation of fear”.

Commons’ writings, in short, supplemented those of Veblen. Veblen and other institutional economists may be considered as sociological, while Commons was legal. He antedates Veblen in the formation of his thought bent.

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W.C. Mitchell (1874-1948): W.C. Mitchell was one of the most outstanding exponents of quantitative research in economics. Pupil of Veblen, Mitchell was born in Rushvile, Illinois, in 1874. He joined the University of Chicago in 1892. As an under-graduate, he studied philosophy and economics. He was influenced by Professor Laughlin, who was orthodox and classical in his ideas, Veblen who was his prophet and John Dewey. Laughlin’s teachings attracted his attention to classical economics. But he found himself at crossroads, when he saw that the practical problems could not be explained by deductive reasoning, which was so much prevalent at that time. In fact, his worry was that classical doctrines were based on the preconceived notions regarding the rationality of consumer behaviour, when in practice it was not so. It was John Dewey who showed him the way.

The study begins with a review of the existing theories, followed by a survey of general economic organization and a detailed statistical analysis of various economic factors like price movement, interest rates, etc., and in the last comes the analysis of the working of cycles.

Mitchell did not consider the study of trade cycles as a branch of economic theory. According to him, the study of trade cycles was more important and fruitful for gaining knowledge in the working of modern economic system, than the orthodox economic system. He was not interested in the study of the causes and the cures of depression. What he was interested in, was the measurement of all the phenomena of the economic system, and in the use of other methods of analysis for un-measurable forces. Mitchell criticized the orthodox theories of equilibrium on the ground that these were based on the misconception that the economic factors had the capacity to come automatically to equilibrium and said the book and depression were the normal occurrences of the modern economic system which was based on money economy.

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UNIT-V KEYNESIAN REVOLUTION

J.M.KEYNES (1883 – 1946) John Maynard Keynes was born on June 5, 1883. His father John Neville Keynes was a distinguished writer on political economy and logic and was for many years the Registrar of the Cambridge University. Keynes was in College at Eton. He won a scholarship to King’s College in Mathematics and Classics. He was the President of Cambridge Union, Won the Member’s English Essay prize for an essay on the political opinions of Burke and twelfth wrangler in the mathematical tripods. He studied philosophy and economics and was influenced by such men and Sidgwick, Whitehead, W.E.Johnson, G.E.Moore and Alfred Marshall. In 1906, he passed second into the Civil Service, getting his worst marks in economics. He joined the India Office. During his two years there, he worked on his fellowship dissertation on “Probability”, which gained him a prize fellowship at King’s. He lectured on money in the Cambridge University.

He was a member of the Royal Commission on Indian Currency and Finance (1913 – 1914). During the period from 1915 to 1919, he served in the British Treasury. He resigned and returned to teaching at King’s. He was a member of the Chancellor of the Exchequer’s Consultative Council and played an important part in Treasury business. He was made a director of the Bank of England. In 1942, he was created Lord Keynes. In 1943, he was made Steward of Cambridge. From 1943 Lord Keynes played a principal part in the discussion and negotiations with the United States to effect a transition from war to peace conditions of trade and finance which avoided the errors of the last peace and to establish international organisation which would avoid both the disastrous fluctuations and the restrictions which characterized the inter-war period. He was the leader of the British experts in the preparatory discussion of 1943 and was the author of the ‘Keynes plan’ – the proposals for establishing an international monetary authority. In July 1944, he led the British delegation at the Monetary Conference on the United and Associated National at Bretton Woods. In February 1946, he was appointed as the Governor of the International Monetary Fund and the International Bank for

Reconstruction and Development. He died on April 21, 1946.

Theory of Employment:

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Having found that the total employment depends upon the size of the national income and the level of investment, we are in a position to analyse the concepts of ‘equilibrium’ and ‘full employment’. The propensity of individuals to spend is influenced by a variety of factors, for example, the distribution of income, their normal attitude to future and, to some extent, by the rate of interest. The greatest contribution of Keynes lies in the statement that unemployment is possible in equilibrium, a fact which was vigorously refuted by the classical school. Keynes tried to establish that an economy may continue to remain in a chronic condition of sub-normal activity for considerable period without any market tendency either towards recovery large scale unemployment existed along with the distressing effects of ‘depression’ during the thirties.

Keynes held that with an in prosperity the expenditure on consumers’ goods declines and the volume of savings increases. In such conditions, for ensuring full employment and production, increased savings will have to be employed in productive investments so that the effects of diminished demand for consumer’s goods may be offset, but, as Keynes said, this does not usually happen. In a wealthy community, “accumulation of capital being already large the opportunities for further investment are less attractive”. Thus, during the period of prosperity the Marginal Efficiency of capital declines. Consequently, there is a downward trend in the level of investment and employment leading to depression and finally to a shrinkage of effective demand, production, employment and income. Keynes has observed that during the nineteenth century, the marginal efficiency of capital schedule remained high due to the opening of new markets, technological innovations, population growth and war. But today, the position is different and the marginal efficiency of capital is relatively low. There are various factors responsible for the relatively lower marginal efficiency of capital. Technical inventions and innovations are not doubt capable of creating investment opportunities. But the entrepreneurs may not be able to gauge the prospects of future profits by new investments. Hence, for achieving full employment Keynes proposed far-reaching measures, including deliberate manipulation of the rate of investment.

From the above the inter-relation between the various variables can be clearly states as follows. The volume of employment in a country depends upon effective demand, which is determined by the propensity to consume and the inducement to invest. The marginal propensity to the volume of investment, although, an increase in investment should usually be accompanied by an increase in the volume of employment, this may not

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happen if the marginal propensity to consume is falling. It therefore, follows that given the community’s propensity to consume; the equilibrium level of employment will depend upon the amount of current investment. An increase in the investment leads to an increase in income, finally leading to an increase in the demand for consumption goods which provides incentive for new investment. A fall in investment will reduce income and demand for consumption goods, and thus lead to a further fall in income. Finally, the amount of current investment will depend upon inducement to invest, that is, upon the schedule of the marginal efficiency of capital and the complex ratios of interest on loans on various maturities and risks.

This entire analysis can be summed up in the words of Keynes himself, as follows: “This analysis supplies us with an explanation of the paradox of poverty in the midst of plenty. For the mere existence of an insufficiency of effective demand may, and often will, bring increase of employment to a standstill, before a level of full employment has reached. Moreover, the richer the community, the wider will tend to be the gap between its actual and its potential production and outrageous the defects of economic system”.

Keynes and the Classical Economics: To some, Keynesian economics is just the classical economics restated and further developed. To others, it represents a genuine break. Which of the two views is correct is difficult to establish. The fact is that Keynesian economics is new in many respects, yet the debt it owes to the classical economics cannot be underestimated. The following are the marked departure from the classical economics.

(1) Keynes has grafted analysis of short period and particularly of the level of employment on the classical theory of long-term equilibrium. The effect of short-run economics, especially the Keynesian influence in this field has been very great in the development of the twentieth century economics.

(2) According to Schumpeter, the attack on savings and the emphasis on spending are the revolutionary elements in Keynesian economics. Although, in early days, Malthus, Robertson and others had thrown light on these aspects of economic activity and their economic effects, it was Keynes who made a vigorous attack on savings and integrated excess savings with his theory of under-employment equilibrium and stagnation.

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(3) Keynesian analysis of wages and employment can be regarded as revolutionary.

(4) Although his analysis regarding the under-employment equilibrium is based on certain assumptions like those relating to the rigidity of wages, monetary policy, the relation of money and the rate of interest, etc., and that this equilibrium is not stable, still it occupies now an important place in economic analysis than ever before

(5) Keynesian concept of money is more dynamic than that of Mill, Marshall, Jevons and Pareto. Money in the Keynesian system is just like a bridge from the present to the future. Theory of Money is an essential part of his General Theory. Expectations are a dynamic element in the Keynesian system and it is upon them that the holding of cash or non-monetary assets depends. One important effect of this analysis has been that publication of Keynes’ books no economist has afforded to exclude the treatment of money unrelated to the theory of output and distribution

(6) One great contribution of Keynes has been the integration of the various theories of money, employment, and interest, with income theory. “In this manner he puts the disposal of general theory the vast store-house of statistics of income, consumption, savings, and investment, with the result that much material becomes available of verification, and the theory becomes much more elastic”

(7) Keynesian economics is more practical and effective that the classical economics.

RECENT INDIAN ECONOMIC THOUGHT Economic History is now a separate subject taught at a large number of Universities in the world; but in our country the work done in this field is quite inadequate. The names of a few writers mentioned in this connection. Economic History of India (2 volumes) by Ramesh Chandra Dutt presents a comprehensive history of economic developments that took place under the early British Rule and in the Victorian Age. In his thesis Commercial Policy of the Mughals Dr.D. Pant has exhaustively discussed the commercial policy followed by the Mughal Kings. A History of Indian Shipping by Dr.Radhakumud Mukherji gives us an account of the ancient Indian shipping industry and the classification of various ships constructed in those centuries in India. Equally important is the work presented by Dr.D.R.Gadgil in his book – Industrial Evolution of India which throws light

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on our glorious industrial past. Famines in India by Dr.B.M.Bhatia are a fine piece of research work that presents a comprehensive study of famines; and offers remedial measures. In the field of finance and taxation the books written by Dr. P.N.Banerjee are remarkable. These are – Indian Finance in the Days of the Company, Provincial Finance in India and A History of Indian Taxation, Dr. Parimal Ray’s India’s Foreign Trade since 1870; I.D. Prasad’s Some Aspects of India’s Foreign Trade (1775 – 1893) and B.N.Adarkar’s A History of Indian Tariff are other important publications bearing on the trade and tariff aspects of our economic history.

It is admitted that before 1947 there were certain hindrances in the way of writing an economic history, including the non-availability of original records; but now with the establishment of the National Archives of India that Major hurdle has been removed. It has now become easy for research scholars to prepare a comprehensive economic history of the country.

So far as the development of economic theory is concerned, the contribution made by our economists is negligible. They have done very little in pure theory. To mention three names, in this connection – Prof. B.V.Krishnamurthy (Price in a Planned Economy). Professor A.K.Das Gupta (Concept of Surplus), Professor J.J.Mehta (Theories of Value and Distribution).

There is no doubt that Indian Economists and writers have concentrated on applied economic research; and the result is that within a short period of 30 years a vast literature on this different aspect of Indian Economy has appeared. Let us now briefly consider the extent to which contribution has been made by Indian economists to the study of economic institutions.

(1) R.C. DUTT (1848 – 1909):

Ramesh Chandra Dutt belonged to an eminent educated family of Bengal. He was born in 1848 at Calcutta. He joined the Indian Civil Service in 1869. After serving as District Magistrate and in various other capacities he was appointed as Commissioner of the Burdwan Division in 1894. In 1899, he was elected as the President of the Indian National Congress. In his later year he was appointed as lecturer in Indian History at the University of London, where he wrote his famous book, entitled Economic History of

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India – 2 volumes. Another important work of Dutt was Famines in India (1900). This book provided such a vivid description of the conditions of agricultural population in India that Prince Kropotkin of Russia wrote to Dutt that, “the conditions of your agricultural population are awfully terrible similar to those of the Russian peasants, and I now will often think that whatever we do in Russia of awakening the consciousness of the agrarian evil and everywhere in Europe as well will be in an indirect way for them”.

His Economic Ideas. Dutt has been chiefly concerned with the treatment of the problem of India’s poverty. According to him, the chief cause of India’s poverty was the British rule and its politics. He tried to prove that it was a result of the British policy in India that there were recurring famines, low productivity and the decay of home industries. Famines and the uncertain land tax were the immediate causes of India’s misery. He said that it was true that famines were caused by the failure of rainfall: they were actually the result of the resourcelessness of the Indian peasant. He has elaborately dealt with these subjects. He says, that owing to the introduction of industrialization in this country the cottage industries declined, increasing the pressure on land. Agriculture which is the mainstay of the people of this country was handicapped by lack of irrigational facilities, and uncertain land taxes. The situation was further aggravated by the unsound financial administration of the country. He believed that the low standard of living of the people was due to the high density of population, low agricultural prices, the land tenure system and the agrarian structure. According to him, the Indian taxpayer was taxed 40% more than that of Great Britain and Ireland. He dubbed the commercial policy adopted by the East India Company and the Parliament as selfish.

With a view of checking the growing poverty in the country Dutt suggested a number of measures. First, he suggested the revival of cottage industries as a step towards removing unemployment and underemployment in rural areas. He further suggested the extension of irrigation facilities to reduce dependence of agriculture on monsoons. Secondly, he emphasized that government should exercise economy in its expenditure and reduce the purchase of stores in England. He also wanted that the rate of interest on the public debt should be lowered. By these measures, he wanted to save Indian wealth from going out of the country.

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R.C. Dutt was the first Indian to write a comprehensive economic history of the country. It still continues to be an authoritative and important account of the social and economic conditions of India during that century. His treatment of cottage industries is remarkable. In fact, Dutt’s system of thought was based on the belief that the political and economic phenomena were dependent upon each other. His method of study was that of analyzing individual cases in an isolated manner. He was a supporter of the policy of laissez-faire but in certain circumstances he also favoured state intervention to the extent of removing the obstacles in the satisfactory working of the economic forces.

(2) DADA BHAI NAOROJI (1815 – 1917):

Dada Bhai Naoroji was born on September 4, 1815. He came from a Parsi family of Bombay. He showed great promise from his very boyhood owing to his devotion to economic and political reforms in the country. He was the first Indian to be appointed as professor at Elphinstone College, the first Indian to found several social organizations, the first Indian to occupy a seat in the Parliament in England, and the first Indian to b e member of Royal Commission. In 1885, he went to England as representative of Cama & Co., the first Indian business firm to open branch in London. In 1856, he was appointed as Professor of the Gujarati language at the University College, London, on which post he remained for ten years. The chief purpose of his stay in England was to provide a home for Indians so that they might freely go there and compete for the Indian Civil Service and other services.

On December 1, 1886, he founded, in collaboration with English officers the East India Association. He was elected President of the Indian National Congress in 1886 and 1906. His economic ideas are contained in his monumental work, Poverty and Un-British Rule in India. The British people were very food of him and used to call him “the grand old man of India”. Following is brief statement of his ideas.

The Drain Theory. The central thesis of his book was to demonstrate that the system of British administration in India was destructive for Indians as well as suicidal to Britain. It is known as ‘the drain theory’, which is based on an explanation of the fact that the appalling poverty of the Indian people was due to the British rule (which was a heavy drain on the resources of the country) under which heavy taxes were imposed on the people. If the income from taxes is spent in the country in which it has been collected,

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the money circulates, among the people of that country, the economic activities are promoted and the prosperity of the people is increased. But when income raised through taxes in one country is transferred to another country, that money is lost forever. It does not stimulate trade and industries in the taxpaying country. He calculated that by 1900 over £20 million were drained out from the revenues of India. This happened in two ways: First, by way of remittances by European officials of their savings in India, for their expenditure in England for pensions and salaries paid in England and from government expenditure both England and in India. Secondly, in the form of remittances by non-official Europeans, this process prevents the formation of capital in the country. Not only that, the British by bringing back the same capital, which they have drained from India have monopolized all trade and important industries. The source of the evil is, thus the official drains. He therefore, held that if the country’s entire production was not employed in the country itself the reproduction will become more difficult. Hence, instead of saving at the existing rate of production, there would be a continuous subtraction from the annual production.

It thus worked as a double-edged weapon – continuous diminution capital, and since industry and labour are limited by capital, they will be left with a little amount of it even to maintain the rate of production. It will be observed that in the drain theory he was influenced by Mill. It appears, as if Naoroji was opposed to the use of foreign capital, but this was not entirely so. He wanted foreign participation within certain limits. He said that in every other country the English capitalists simply lent their money. The people of the debtor country used and enjoyed the benefits of that capital and paid to the capitalists the interest or the dividend. The case quite different with India, the English capitalists did not merely lend their capital, but they themselves invaded the country.

(3) MAHADEI GOVID RANADE (1842 – 1901): Rande was born at Nasik on January 18, 1842. After taking his M.A. degree in 1865 from the University of Bombay, he qualified for the degree of Law. After practicing law for a few years he was made the Presidency Magistrate in Bombay in 1881. In 1893, he was appointed as the Judge of the Bombay High Court. Since then, Ranade was popularly known as Justice Ranande. He continued on this post until his death in 1901. Ranade has been called as the father of the Renaissance in Western India.

His Economic ideas:

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(1) On Methods of Economics. Ranade studied carefully the economic systems of various European countries, and arrived at the conclusion that inductive or historical method was the best. In this words: “The method to be followed is not the Deductive but the historical method which takes into account the past in its forecast of the future; relatively and not absoluteness, characterizes the conclusions of the economic science”. (2) Role of the State. Ranade conceived of a planned economy for India with the object of establishing a welfare state but he never stated it in clearer terms. He unceasingly tried to impress upon the people the urgency of a plan for the economic development of the national economy in which the state was to play an important role. According to Ranade, the economic development of India depended upon the economic, social and political institutions. It was the duty of the state to direct and channelize the activities of individuals and institutions, towards a well determined goal. In India, since the private initiative was shy, the state should undertake measures for the industrial development of the country, through subsidies and bounties. “The Sate”, said Ranade, “is now more and more recognized as the national organ for taking care of national needs in all matters in which individual and corporative efforts are most likely to be so effective and economical as national effort. To relegate them to the simple duty of maintaining peace and order is really to deprive the community of many of the advantages of the social union”. (3) India’s Poverty. According to Ranade, the chief causes of India’s poverty were the predominance of agriculture, backward industries, paucity of capital, and defective land policy. He did not accept the view of Naoroji that India’s poverty was due to the drain on her resources. He believed that the chief cause responsible for the poverty of India was the agricultural economy of the country.

(4) MOHANDAS KARAM CHAND GANDHI (1869 – 1948): Mohan Das Karam Chand Gandhi was born at Porbandar on October 2, 1869. In 1887, he went to England for education in Law; and was called to the bar in 1891. Two years later he went to South Africa where he practiced law; and successfully led the Indian community in its movement against discriminations. It was there that he evolved the conception of Satyagraha or non-violent agitation.

When he came back to Indian in 1906, he assumed the political leadership of the country, re-invigorated the Indian National Congress; and started the non-violent movement for the achievement of political freedom. In 1921, he started the non-co-

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operation movement, in led the salt Satyagraha (Dandi) and in 1940 started the individual civil disobedience movement. In 1942, under his leadership the Indian National Congress passed the “Quit India” resolution. He was jailed several times for his political activities. While going to his daily prayer meeting he was stored dead by an extremist on January 30, 1948.

Literature of Gandhian Economic Thought: There is ample literature on Gandhian Economic Thought. Some of the pamphlets and articles were articles were written by Gandhi himself, for example, cent Per cent Swadeshi, Constructive Programme-Its Meaning and Place, Economics of Khadi, and Food Shortage and Agriculture. Much can be derived from his articles published in the Harijan and Young India. Other works to be mentioned in this connection are J.C.

Kumarappa-public Finance and Our Poverty, The Gandhian Economic Thought, and Why the Village, Dr. Rajendra Prasad – Constructive Programme – Some Suggestions, S.N.Agarwal – The Gandhian Plan, R.B.Gregg – Economics of Khaddar, Pattabhi Sitaramayya – On Khaddar, M.L. Dantwala – Gandhism – Reconsidered, J.J.Anjana – An Essay on Gandhian Economics, etc.

Economic Ideas of Gandhi: Welfare Economy. In the Gandhian economic thought man figures more prominently than wealth. To Mahatma Gandhi human beings themselves were wealth is in producing as many as possible, full-breadth, bright-eyed and happy-hearted human beings”. He believed that, that country was the richest which nourished the greatest number of happy individuals; and that man was the richest who, after fulfilling the mission of his own life and perfecting its functions to the maximum extent, influenced the lives of others. Non-violent Economy. To Mahatma Gandhi, there was no industry no human activity without a certain amount of violence; but what he wanted was to make sincere efforts to minimize it. His firm belief was that Nature produced enough for the satisfaction of the wants of all people, and if everybody took only that much which was sufficient for him/her, there would be no pauperism and no starvation. He felt that those (including him) who had commodities at their disposal or under their possession, had no right to possess anything unless the millions of hungry and poor were fed and clothed; and this called for an adjustment of wants.

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Decentralisation. Mahatma Gandhi had seen how the centralization of economic functions had created difficulties and irregularities. He believed that centralisation could not continue without adequate force. When production is carried on a large-scale basis in mills and factories, distribution is not regulated automatically, but in a roundabout way in which there is great scope for speculative activities and fraud. He further believed that a mechanized economy was based on violence; and that in a world of centralized functions a man could not lead his life fully and happily. He did not approve of the Statecontrolled economy of Russia-as it was based on force. Use of Machines. If the humanity is to take advantage of science, is should regulate the production of useful things in the quantities needed by the society; and eliminate that of useless and harmful things. Science should be used to regulate all aspects of the economic life of the community. Before the introduction of the factory system and of machines, the economy of an agricultural country (with its cottage industries) was more equitably regulated than now under capitalism. Regeneration of Villages. It is well known that the villages of ancient India were selfsufficient and economically self-dependent. In those days, production, distribution and consumption were amount simultaneous. Mahatma Gandhi often said that the real India was to be found in villages, not in cities and towns. He agreed with Lionel Curtis’s description of an Indian village as “a collection of in-sanitary dwellings constructed in a dunghill”. Mahatma Gandhi further described the exploitation of villagers, lack of supplementary occupations, inadequacy of medical attention, in-sanitary conditions, extreme poverty, etc. He wanted every village to develop into a little republic, independent of its neighbours in so far as its vital wants are concerned. He evolved the ideal of Village Swaraj. Khadi Industry. Calculating that every Indian required at least 13 yards of cloth per year (in 1920 when he wrote an article in the Young India under the title Swadeshi) and believing that the multiplication of mills could not solve the problem of cloth-supply. Mahatma Gandhi stressed the need for the development of khadi industry. Khadi to him was “the symbol of unity of Indian humanity, of its economic freedom and equality”, and to Jawaharlal Nehru it was, “the livery of India’s freedom”. The khadi mentality means the decentralisation of production and distribution of the necessaries of human life. Doctrine of Trusteeship. While talking to Horace Alexander, Mahatma Gandhi remarked that the capitalist who had amassed a large sum, was a thief. He believed that if a person had inherited a big fortune or had collected a large amount of money by way

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of trade and industry, the entire amount did not belong to him. What belonged to his was the right to an honourable livelihood “no better than that enjoyed by millions of others”. The rest of the wealth belonged to the community; and must be spent on its welfare. Labour Welfare. One of the important fields where Mahatma Gandhi extended his fight for economic equality was the factory. He saw that workers were subjected to gross injustice and the treatment meted out to them was below dignity. To him, the employment of children was a national degradation. He always pleaded for shorter hours of work and more leisure so that workers might not be reduced to the condition of beasts. He also demanded safety measures inside. Food and Population. During 1943 – 44 when the Bangal Famine took place, there was an acute food shortage through out India. In the beginning, Mahatma Gandhi believed that this scarcity was artificial, i.e., it had been created by foodgrains’ dealers. But when he wandered in Madras, Bengal and Assam; and received reports from other parts of the country, he came to believe that food shortage was a reality. The government report expressing the fear of food shortage immediately increased the prices of foodgrains, He advised businessmen not to adapt speculative activities, and asked them not to add to the distress which had been caused by the incompetence of the government. Exchange of Economy. The Gandhian approach to exchange economy is based on the swadeshi spirit according to which every Indian village would be “a self-supporting and self-contained unit exchanging only such necessary commodities with other villages where they are not locally producible”. The person who has accepted the discipline of swadeshi would not mind physical discomfort or inconvenience caused by the nonavailability of certain things which he has been using. He would gradually learn to do without these things which up to this time he has been regarding as necessary for his life. Constructive Programme. Mahatma Gandhi’s constructive programme was a big undertaking which included 18 items enumerated below: Communal unity, removal of untouchability, probibition, Khadi , other village industries, village sanitation, uplift of women, basic education, adult education, hygiene and health, economic equality, propagation of national language, provincial languages, kisans, labour, Adivasis, lepers and students. Removal of Untouchables. All items of this programme are important; but here we consider it desirable to throw light on three of them – removal of untouchables,

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prohibition and khadi. As Gandhi believed, untouchable was a sin against God and man. It was “like a poison slowly eating into the very vitals of Hinduism”. It degraded both the untouchables and the touchable. He felt that Swaraj had no meaning if about 4 crores of people were kept under perpetual subjection: and were deliberately denied the fruits of their labour and national culture. To him, untouchable was not only past and parcel of Hinduism but a plague which every Hindu should try to combat. Prohibition. Mahatma Gandhi did not regard coffee and tea as the necessities of life. These along with tobacco and alcohol are injurious to the development of health. To Tolstoy, tobacco was the worst intoxicant. Gandhi argued that moral loss was even greater than financial loss because the drunkard forgot the distinction between wife, mother and sister and indulged in those crimes for which in his sober moments he will be ashamed. He sympathized with the wives of drunkards. He saw on two occasions that the captains of steamers were so drunk that they could not control them (steamers) unless they cam to their senses. He also saw “drunken barristers swallowing in gutters carried home by the police”. In the words of Professor Anajaria – “Gandhism is after all, a compromise – Compromise between the ideal of a simple decentralized community life on the one hand, and the demands of modern techniques and science on the other”. According the Dr.J.C. Kumarappa and Pt. Sunder Lal, Gandhism is Marxism minus violence; but socialist leaders of the caliber of Jaya Prakash Narain, J.B. Kripalani and Dr.Ram Manohar Lohia feel that Marxism is suitable for Western countries where industrialism has reached its perfection. For an agricultural country like India Marxism is not suitable. They have, therefore, accepted the Gandhian Sarvodaya, without any modification, as the ideal to be achieved.

(5) Dr.B.R.Ambedkar:

Introduction: One of the most famous leaders in our country in 20th century was Dr.Beemarao Ramji Ambetkar. He told that not only political freedom but also social freedom. He framed a great Indian constitution for labourers, weaker sections and benefits of all people.

College Life: In 1915 he completed his degree course in Elphinstone College, Bombay. He wrote a book on India’s birth and development of caste system in that year. He finished his M.A.,

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(Economics) degree course at Columbia University, USA and did his research work and got Ph.D in USA University. After returning to India he worked as Professor of Economics at a College in Bombay during 1918 to 1920. He studied law in England, he became professor in a law college and chairman in Constitution Framing Committee and also law minister.

Economic Ideas of Ambedkar: Economic Thought of Ambedkar was divided into two parts. First part was his research reports, ideas before 1921. The second part was after 1921. Returning to India, he wrote three important books and he lived as a great economist. His first book, dealt about financial position and administration of East India Company. He wrote many ideas about finance and administration. The second book stated about growth of finance of Provinces. The third was very important one about Problems of Indian Rupee.

Economic ideas in monetary reforms about problems of Indian Rupee were accepted by Royal Commission. Reserve Bank of India was established in 1935. He insisted about stability in money value. Unstable conditions led problems of Indian Economy. He was a Social Reformer.

He gave number of poverty eradication programmes for removal of poverty. He protected poor people. He often stated words of reducing inequalities of income and wealth and to set up a socialist society based on equality and justice and absence of exploitation. He supported collective farming and socialistic principles.

Conclusion: Ambedkar wrote about growth of finance at provinces, Problems of Rupee, exchange methods of gold coins. Concepts and views of him were praised by economists. He was a social reformer, writer and political leader. He worked for all persons mainly for poor depressed classes.

(6) Rajaji: Introduction:

Sri Chakkaravarthi Raja Gobalachari was a great man in politics. He was very much interested in religion. He was a philosopher and a good writer. He had finished his law in

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Madras University and he continued his service as a lawyer in Salem. He argued well in court with his efficiency. He was praised and he attained more amount of wealth. He had joined with congress party and fought for freedom. He was elected as a leader in Salem Corporation in 1917.

Government and Common Man: Rajaji told that the main function of the government was to fulfill basic needs of food, clothing and shelter for common and poor man.

The Main functions of Government were (a) Full employment (b) increase in production of food grain (c) Expansion of small types of irrigation facilities (d)

construction of new buildings for schools and establishing more schools for spreading education (e) Expansion of installation of new industries for production of consumer commodities.

Education and choosing job with the desire of children, young people had to study with their own willing not only that but also they learnt their parents’ occupation after studying in schools and colleges. Some persons severely criticised Rajaji’s policy. They thought about that Rajaji spread particular type of education which created caste struggle.

Rajaji insisted the government to start a long period plan with huge amount of investment for expansion and studying of new industries to give employment opportunities to poor people. He stated to government to give importance to small scale industries and the main function of the Government was to give pure drinking water to village people and to create stability in prices and also is good faith. Fiscal deficit and over borrowing were not good for development.

Indian Agriculture:

Rajaji viewed following ideas (a) Indian agriculture was the backbone (b) it was the panacea for development of Indian Economy (c) the development was in Rural Development. (d) India was in villages (e) the development of villages led to the growth of our nation (f) he hated collective farming. (g) Agricultural commodities and inputs for

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farming, prices must be regulated. (h) Fair wages could be given to agriculture lands less labourers.

Indian Industry and Trade: Rajaji strongly supported following concepts (a) Increasing entrepreneurs Spreading industries to all places (c) Against in nationalisation of industries (b) (d)

Government’s intervention for regulation of industries (e) Government directly not to produce commodities. (f) Growing equally both consumer goods industries and producer goods industries (g) development of village industries for giving employment

opportunities to rural areas. (h) Industries spread to all places without in one particular place (i) Government policy, not affected any single entrepreneur (j) Rajaji accepting Gandhi’s trusteeship policy.

Economic planning: Planning concept had been developing after independence. Nehru, C.N.Vakil, D.R.Gadgil, V.K.R.V.Rao were very important person for starting Economic planning. Rajaji insisted importance of planning but his ideas were not in favour with Nehru’s planning. Rajaji liked only decentralised planning. He insisted foreign investment as good for the nation not loans with occurrence of Industrial Development was in the Leads of foreign investment.

Conclusion: Rajaji did well our nation. He was the first Governor of Free India. He was praised by all writers, economists, politicians for his valuable thoughts.

(7) Jawaharlal Nehru (1889 – 1964): Jawahar Lal Nehur was born on 14th November 1889 at Allahabad. His father, Pandit Motil Lal Nehru, was a famous lawyer and a rich man and as such Jawahar Lal was brought up like a prince. He received his primary education at home but after passing his Matriculation Examination went to England to higher studies. After taking his degree in Law he came back to India in 1912 and started practice at Allahabad. In 1916 he was married to Kamla. He came under the influence Mahatma Gandhi and left his practice in 1921 to join the National Movement started by Gandhiji. He was sent to jail several times and was elected president of the Congress four times. He was undoubtedly very hard working, courageous and bold, scholarly as well as a believer in truth, non-violence

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and universal brotherhood. During his life time he was loved and respected by all and became a great leader. He became the first Prime Minister of the Indian Republic after independence and died in harness on 27th May, 1964.

Jawaharlal Nehru was the product of the Indian Renaissance and the product of the Indian Revolution to which he tried to give shape and content. He was a rebel and extremist before he had met Gandhiji and a man of embattled spirit eager for action. He was not a man of religion, thought he later achieved insight and wisdom which made him a sage as much as states man. Gandhi attracted him because the action he proposed was tangible and which could be understood and appreciated intellectually.

To Jawaharlal Nehru the dominant passion was to get rid off subjection to foreign rule, to achieve freedom and to give social and economic content to that freedom. There arose, some times, grave difference between Gandhi and Nehru on the attitude to war, on issue like non-violence and the duty of a free India towards resisting violently the forces of Nazism and fascism. There was other difference too as on industrialization and technological development and Jawaharlal Nehru expressed his views frankly in Gandhi’s lifetime. The auto-biography of Jawaharlal Nehru and the two other important books – ‘The Discovery of India’, the ‘Glimpses of World History’ as well as many historical speeches and writing give a clear impression of this great man of destiny, of history, a man of action and of thought and the master spirit of an epoch in Indian History.

His Economic ideas: Jawaharlal Nehru realized the importance of planning for an economically backward country long before planning because the vogue. He wrote in his autobiography, “Our final aim can only be a classless society with equal economic justice and opportunity for all, a society organized on a planned basis for the raising of mankind to higher material and cultural levels”. The National Planning Committee was set up by the Congress under Nehru’s chairmanship towards the end of 1937 and the ultimately became the chairman of the National Planning Commission. He had a keen interest in economic planning.

Use of Foreign capital: Nehru believed that for financing our plans foreign capital was essential and could benefit India in its industrial growth as it had benefited America.

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Concept of Mixed Economy: It was under Nehru’s leadership, that the policy of ‘Mixed Economy’ was accepted and announced for the country’s economic industrial progress. Democratic Socialism: Nehru was one of the original socialist in India. He realized that any social structure founded on inequality is against nature and is bound to break down in the long run. Social ownership and welfare State: The basic philosophy of social ownership had been expressed by Nehru in ‘Discovery of India’. He wrote that democratic collectivism need not mean an abolition of private property, but it should mean public ownership of the basic and major industries.

Jawaharlal Nehru was a typical example of an integrated personality. He was an intellectual, a democrat, a socialist all rolled in one. Above all he was humane.

(8) V.K.R.V. Rao: Dr. V.K.R.V. Rao started his career as Assistant Professor in Economics in Wilson College, Bombay, subsequently, he served as a Principal and Professor of Economics at S.L.D. Arts College, Ahmedabad; Professor of Economics at Delhi University; Director, Delhi School of Economics, Delhi University; Vice-Chancellor of the Delhi University, The Director of Institute of Economic Growth and the Union Minister for Education in India. He set up the Institute of Economic Change at Bangalore. He was the first Indian to compute the national income of India. His main works are: Taxation of Income in India (1931); An Essay on India’s National Income 1915 – 1922 (1939); What is Wrong with Indian Economic Life (1938); The National Income of Indian 1931 – 32 (1940), War and Indian Economy (1943), India and International Currency Plans (1944), and Planning Economic Transition from War to peace in India (1945). Regarding tax on income India he pointed out that, “The India System of income-tax reveals an entire absence of any background of theory of principle. No attempt has so far been made by the government to examine the fundamental principles underlying its levy or to analyse its incidence; such improvements as have been made, from time to time, are of a piecemeal character”. With a view to rationalizing the system he has suggested certain changes, which are: (i) More clear scope of the income-tax should be determined and all incomes arising, received or receivable in the country should be included without any ambiguity, (ii) the exemption of agricultural incomes should be removed, (iii) gross and net incomes should be clearly defined (iv) certain personal elements must be given due

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consideration while computing the income to make the system more judicious,

(v)

the tax should be properly graduated, (vi) the Hindu Undivided Families must be given legal recognition; and (vii) administrative Courts of Justice for assesses’ appeals must be created.

His suggestions for a post-war economic policy were: (i) It should prevent an abrupt transition from a war time economy to peace-time restriction on imports should not be abruptly terminated, immediate relaxation in the imports of consumption goods should not be permitted and war time controls should be gradually relaxed; (ii) long period objectives should be borne in mind when providing employment for those who become unemployed on with respect to domestic requirements; (iv) the government ought not to commit themselves to any international agreement regarding control of tariff policy and freedom of international trade; (v) the rehabilitation of Indian agriculture should from a part of the post-war economic policy; (vi) the government should be prepared to face the problems of labour; (vii) due consideration be given to the economic needs of different regions. Professor Rao was of the view that the transition from war to peace in India must have three objectives in view; (i) speedy and extensive relief to the consumers; (ii) re-employment of a productive character to the personnel demobilized from military, civil or industrial occupations; (iii) the transition period should be used as a base of the inauguration of an era of planned economy.

(9) C.N. Vakil:

Professor C.N.Vakil was the Director of the School of Economics and Sociology of the University of Bombay upto 1956. Thereafter, he worked as the Director of the UNESCO Research Centre at Calcutta upto 1960. His main contributions are in the fields of fiscal problems, Indian Finance and Planning. He has written a number of books singly as well as in collaboration with others. His more important work is Financial Development in Modern India – 1860 - 1924, which was published in 1929 and was the result of his research which he carried out at the London School of Economics. Among his other independent works, mention may be made of Our Fiscal Policy. Economic Outlook in Federal India, The Falling Rupee, The Financial Burden of the War on India, Our Sterling Balances, Economic Consequences of Divided India, and Planning for a Shortage Economy.

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In his book entitled Economic Consequences of Divided India, Professor Vakil has analysed the more important economic consequences which arose with the partition of the country, viz, the distribution of area and population between the two countries, the size and the magnitude of the refugee problem and its financial implication, the effects on agricultural economy, industrial structure, transport, foreign trade, public finance and currency and banking and insurance. At the end he says that, “though there are signs that we have turned the corner, the average man finds himself in serious difficulties, because of the continuation of inflationary conditions in the country”.

From the foregoing account it is clear that Professor Vakil was one of the most prominent economists that India has ever produced. His outlook was objective and his suggestions were practical. His contribution to the solution of the various economic problems in the fields of Government finance, industry, trade, currency and planning of the country will be every remembered.

(10) D.R. Gadgil (1901 – 1971):

Dr. Dhananjay Ramachandra Gadgil, M.A., M.Litt., D.Litt., who was educated at Nagpur and Cambridge Universities served in various capacities. He served as Addition Secretary. Finance Department, Government of Bombay during 1924-45, as Principal, M.T.B. College, Surat from 1925 to 1930, as Director, Gokhale Institute of Politics and Economics from 1930 to 1966, and as Deputy Chairman, Planning Commission from 1967 to 1971. He served on several committees including the All-India Rural Credit Survey. He died on May 3, 1971.

He published 24 books, many articles and papers. His publications include The Industrial Evolution of India in Recent Times (1924), Imperial Preference for India (1932), Regulation of Wages and Other Problems of Industrial Labour in India (1943), reprinted 1954, War and Indian Economic Policy (1943), Federating India (1945), The Federal Problem in India (1947), Economic Policy and Development (1955), and Planning and Economic Policy in India (1961).

Economic Ideas: Industrial Evolution:

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In the first edition of the book published in 1924 Dr.Gadgil covered the period from 1850 to 1914, but in subsequent editions he brought the material up-to-date. He has pointed out that the most important event in the economic transmission of the country was the decline of handicrafts on account of the railway policy, free trade policy of the then government and lack of technical education. The commercialsation of agriculture and increasing population were other aspects of the economy, the latter called for an impetus to be given to industries for relieving the human pressure on land. During that period the cotton textile and jute industries made commendable progress. Regarding the future trend he observed – “No big industries requiring complicated machinery of a through use of by-products are likely to sprit up the chief direction of progress will be that of the accessory industries and industries chiefly connected with agricultural operations or with the further working up of raw agricultural produce grown in the country”.

Industrial Labour: In 1940 Professor Gadgil delivered lectures at the Patna University, the outcome being the publications of Regulation of Wages and Other Problems of Industrial Labour in India.

War and Economic Policy: During the period of the Second World Ward Professor Gadgil wrote a book under the title War and Indian Economic Policy in collaboration with Mr.N.V. Sovani. He pointed out that during 1939 – 43 there had been an enormous expansion of currency necessitated by the exigencies of the then British Government.

Planned Economic Development: Dr.Gadgil wrote in 1947 that the plans of development which should largely be concerned with agriculture and countryside; would involve a great public expenditure. The physical results of this huge expenditure would depend upon the technical and administrative efficiency of the planning authorities.

Pre-condition for economic development: Before a community is set for economic development, certain obstacles have to be overcome; these may be religious or social prohibitions or might arise from the traditional modes of life carried through the generation of comparatively static economic conditions.

Price Policy. To Dr.Gadgil that price policy was a long-term phenomenon for which administrative and other arrangements were to be planned.

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(11) Smt. Indra Gandhi: Introduction: Daughter of Jawaharlal Nehru, Indira Gandhi was a good administrator, politician, and writer. She wrote Eternal India book and number of books about India. She became prime minister of our country after Sastri. She adopted number of policies to uplift poor mass. She developed industries with new technology. Indira often stated the words, “She was servant of the Nation”. She died in 1984. Economic Ideas of Indira Gandhi: (a) Nationalisation of Banks: Imperial Bank of India was nationalised as state Bank of India. In 1969 July month, a bank which possessed Rs.50 crores deposited amount was nationalised (14 banks) and 1981 April month 6 banks (Rs.200 crores deposited amount) were nationalised. Socialistic principles were developed well during her period, Life Insurance Corporation was also nationalised in her period. Number of industries was also nationalised. Her policy was based on Indian culture, civilization and also faith is god. (b) Poverty Eradication Programmes: She framed number of policies for eradication. Poverty was very important hurdles for development of our economy. Important objective of five year plans was only poverty eradication programmes. Poverty can be defined as a social phenomenon in which a section of the society is unable to fulfil even its basic necessities of life. The seventh Finance Commission made an attempt to have a more inclusive concept of poverty line. From the data, it was revealed that 277 million persons lived below the augmented poverty line in 1970 – 71. As a percentage of population of the 15 states, the people below the poverty line constituted 52 percent. Out of these 225 million persons in the rural areas and 52 million persons in the urban areas lived below the poverty line. Indira Gandhi analysed the poverty figures and framed necessary steps immediately. Devaluation: Devaluation means country’s value of currency is contracted in terms of other country’s currency. Devaluation is meant for development of exports only, not imports. A country follows this policy in the time of unfavourable balance of payments. Indira Gandhi did devaluation principle and explained about merits and demerits of it. Economic Planning and Economic Development: The Indian National Congress, under the inspiration of Nehru, set up the National Planning Committee (NPC) towards the end of 1938. Besides the NPC, eight leading

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industrialists of India conceived “A plan of Economic Development” which was popularly known as the Bombay plan. There was also a Gandhian plan which was prepared by Shriman Narayanan. Just after the attainment of Independence the Prime Minister Nehru setup the Planning Commission in 1950 to asses the country’s needs of material capital and human resources and to formulate economic plans for their more Balanced and effective utilisation. The First Five years plan commenced in 1950 – 51 and it was followed by a series of Five year plans. Nehru, set up NPC in 1938 and Planning Commission 1950 for the development of our nation. Daughter also did the same way for the economy. She framed number of new objectives and targets in plans for employment opportunities, poverty, and also both industries and agriculture. She framed 20 point programmes for benefits of Indians. Conclusions: Indira Gandhi was an eminent Prime Minister as an efficient leader, a strong politician, and a good writer. India had been developing day by day during her period. Her 20 point programmes were praised by all.

NOBEL LAUREATES IN ECONOMICS

Economics was recognised as a science for the award of Nobel Prize in 1969. The economists so far honoured are: Ragnar Frisch and Jan Tinbergen (1969); Paul Samuelson (1970); Simon Kuznets (1971); J.R.Hicks and K.J. Arrow (1972); W.Leontief (1973); Gunner Myrdal and F.A.Von Hayek (1974); L.Kantorovich and T. Koopmans (1975); Milton Friedman (1976); B.Ohlin and James Meade (1977); Herbert A. Simon (1978); T.W.Schultz and Arthur Lewis (1979); and L.R.Kienin (1980); James Tobin (1981); G.J.Stigler (1982); G.Debreu (1983); R.Stone (1984); Franco Modgiliani (1985); J.M.Buchanan (1986); R.M.Solow (1987); Maurice Allais (1988); T.N.Haavelmo (1989).

P.A.Samuelson:

P.A.Samuelson of the Massachusetts Institute of Technology is the winner of the Second Nobel Prize in Economics for the scientific work through which he has developed Static and Dynamic Theory and actively contributed to raising the level of analysis in Economic science. He was born in 1915. He was the first American to achieve this distinction and

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he can be included among half a dozen distinguished and noted American Economists of today.

Simon Kuznets: Simon Kuznets has been awarded Nobel Prize for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development. He consistently aimed at giving quantitative precision to economic entitles and thus make it more relevant for economic and social development.

John Hicks: Professor John Hicks was awarded Nobel Prize for his contributions to general economic theory and economic welfare. Sir John Hicks was born in Warwick in 1904. He graduated in 1925. He was lecturer at the London School of Economics from 1926 to 1935. Thereafter, he moved to Cambridge and remained there for three ears. At the time of the publication of his Value and Capital, Hicks had joined as Professor of Political Economy in the University of Manchester and remained there for six ears. From 1962 to 1965 he worked as Drummond Professor, Political Economy in Oxford University until his retirement in 1965.

Nobel Laureates - Since 1990: 1990 –Harry M.Markovitz, F.Share and Mirden Miller. 1991 – Ronald Gose 1992 – Grey Berger 1993 –Robert W.Fogel, Douglas C.North 1994 – John C.Harsanye, John F.Nash and Reinhard Shelter 1995 – Robert E.Lucas J.R 1996 – James A.Mirrahas, William Viccri. 1997 – Robert C.Merton, Meon S.Scallas 1998 – Amartya Kumar Sen (India) 1999 – Robert A.Mundal 2000 – James J.Hagman, Daniel L.Megparden 2001 – George A.Agralob, A.Michael Spence and Joseph E.Stigler 2002 – Bernard L. Smith, Daniel Gamen 2003 – Robert F.Angel III, Glife W.J. Kranger

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2004 – Fin E. Kesinland, Edward L.Fersheart 2005 – Robert J.Amuman, Thomas C.Shelling.

Robert W.Fogel and Douglas C.North: The Nobel Prize in Economics for 1993 was shared by two U.S. economists – R.W.Fogel and D.C.North for using modern statistical tools to explain past economic events and for questioning long-held theories about growth and development.

The Royal Swedish Academy of Sciences cited the two for providing a better understanding of why economics change occurs. The Academy described them as leading figures within the field of “new economic history” whose works challenged widely held ideas. It said that modern economic historians contribute to the development of economic sciences in at least two ways: “by combining theory with quantitative methods and by constructing reconstruction databases or creating new ones. This has made it possible to question and to reassess earlier results, which has not only increased our knowledge of the past but has also contributed to the elimination of irrelevant theories”.

John C.Harsanye, John F.Nash and Reinhard Seltan:

The Nobel Prize is Economics for 1994 has been shared by John C.Harsanye, born in Budapest, a retired professor from the University of California at Berkeley; John F. Nash, of Bluefield, West Virginia, a mathematician at Princeton University and Reinhard Seltan, born in what was then Breslau, Germany in 1930 and who now teaches at the University of Bonn. They have won the prize for their path-breaking study of game theories which help explain economics. These economists have played a major role in developing the study of games like chess or poker into a vital tool for economic analysis.

Amarthya Kumar Sen:

Professor Amarthya Kumar Sen was the 6th Nobel Prize winner in India and first person in Economics in Asia Continent in 1998. He was the first individual person in Economics since 1995. He was born at Santhi Niketan in Calcutta in 3rd November 1933.

He finished his various degree courses in Economics and work as Professor of Economics in London. Sen wrote about famine in Bangladesh. His idea was only giving employment

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opportunities instead of giving food materials during about period. He gave a good speech about a comparison between Kautilya and Adam Smith in front of Italy president. His beautiful speech was praised by all. He wrote 18 books and more than 500 research articles. He states about that good health, removal of poverty and education these three are speedy growth of a nation. Collective action is only needed for removal of poverty not state intervention alone. He was student of Robbins in Cambridge University. Broad liberalisation and too much of state intervention are not good for developing of a nation. He favours this idea.

He tells that women’s education, freedom, and employment opportunities, equal status is necessary for a development of a nation. Government of India honoured him for his concepts and ideas to develop a nation by Bharatha Ratna in 16-02-1999. Important Books of Sen: (1) Collective Choice and Social Welfare. (2) On Economic inequality. (3) On Ethics and Economics. (4) Commodities and Capabilities (5) The Standard of Living (6) Poverty and Famine. (7) Hunger and Public Action (8) Inequality Reexamined (9) Economic Development and Social Responsibility. (10) Resources, Values and Development

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