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    43 views16 pages

    FS-1-Classical Political Economy

    Uploaded by

    Shivani Shyam Narayan

    Copyright:

    © All Rights Reserved
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    64 PARTI: ECONOMIC SYSTEMS ANO ECONOMIC THEORIES Have we comealong way? Orare there elements of circularity, repetition, and evensegres= in the development of economic thought? Has the inherently politial nature of economics PART III {impeded our understanding of modern capitalism? And, on what basis can future progress be ‘ade in understanding the economic system and in changing it forthe better? A prerequisite for such progress is understanding how we reached this point. Tha, essentially, is the rationale for studying political economic analysis in historical perspective tis the rationale ‘orsmuch of what follows in the rest ofthis hookteasing out what economic deus ae relevant ‘to understanding the economy and dealing with the political economic challenges that confiont us.” Back to Basics Conclusion Understanding how the captalist economic stem works, for eter or worse, isthe principal concer of politial economy, Ben the interpretation ofthe economy asa system implies an analyta stance, because ‘syste’ implies regularities of behaviour and features that, in Principe atleast, canbe understood and managed, However, there is no unaninity cn how to fashion this understanding. Rather, an conomicsystemsuchas captain can be understood in vaio ways. Those diferent ways of seeing exis partly bens of methadcoscl ferences regarding the best wayto construct theory ad partly because of differences in value judgments associated with rival polital a ae phous Nowe an histor ma ef he dpe ees 08 OSS se cate aL connection betwen the contest of economicideas andthe confict of economic interest. KEY PoINts 1 age fac ene ae ete soa: ones? Berio ite > ar 9 Private Vices, Public Virtues 8 Capitalism Emerging Tear eilion CE ae encanta 10 Value, Distribution, Growth 11 Land and Econdinic Surpius Capitalism Emerging Do the concerns of the classical political economists still matter? What processes produced the economic system that the classical poltical economists sought to understand? ‘Why did they see the emerging copitalst system os progressive? CGassical political economy spanned the period from the late eighteenth century to the late nineteenth century. During thi period, significant contributions to econoraic theory ‘were made by Adam Smith, David Ricardo, Thomas Malthus, Jean-Baptiste Say, James Mil, ‘John Stuart Mil, and many others. Most ofthese scholars came from relatively privileged Dackgrounds: the lives of ordinary working men and women permitted no comparable ‘opportunity fr leisured study, publication, and socal influence, Why should webe interested now in the ideas ofthese dead white males? Surely teks was a different society, with diferent economic characteristics and problems? Indeed, it would ‘be unreasonable to claim that thir analyses can simply be applied today without substantial ‘revision. That said, some familiarity with theircontributionsis useful for atleast the reasons, Firs, i is interesting in its own right to see how these practical scholars grappled with the ‘workings ofthe emerging capitalist economy. Second, their work has influenced subsequent ‘economic thought. The major schools of economic analysis. both conservative and radical. are largely developments of or reactions against, casscal political economy; and modern political economy is, in important respects, an extension of the classical tradition. Third, the ‘rescriptions of the classical political economists continue to influence economic policies in the real world, notwithstanding the major economic changes that have taken place over the past two centuries, The current influence of classical ideas Many modern economic viewpoints are traceable to classical politcal economy. Adam Smith (2723-0) is often cited by modern neoliberas in support ofthe arguments fo free-market CHAPTER 8: CAPITALISM EMERGING capitalism, for example. The belief that freedom of exchange and a self-regulating market ao the preconditions for social progress is one of te tullmarks of this infuential ideology. Promoted vigorousl; by national and international ‘think tanks’, this particular economic ‘ideology hada divectconnection with the polices of influential polticiansinthelate twentieth, and early twenty-first centuries Their economic advisers, ifnot actually tie-wearing members ‘of the Adam Smith Club, have been imbued with a preference for the invisible hand of the market over the vist hand ofthe state. This preference i revealed in the politcal shetoric, ‘fot consistently nthe economic polices actually implemented, ‘The ideas of David Ricardo (1772-1823), another of the leMding classical political economists, are also of enduring significance. In his own day, Rcando wasa strong advocate of breaking down the buries to international trade, arguing that, if each nation specialised in ‘the production ofthegoods and services for whichit was best sulted and then traded its surplus with other nations, all would benefit. This isthe basis of his famous doctrine of comparative ‘vantage. Proponents of globalisation today generally mount similar arguments—aithough the term ‘competitive advantage’ has replaced the Ricardian ‘comparative advantage’. An assessment of the cases for and against tariff protection or other impediments to trade can usefully begin wth aeconsideration of Ricardo's reasoning Ortake the case Thomas Malthus (1766-1834), the gloomy parson, famous for his views ‘onpopolation growth, Malthus argued that there would be apersistent tendency forthe ate of ‘Population growth o outstrip therate of growth food production, leading to femines, lines, and wars, that would prevent the living standards of the mass ofthe population from rising substantially above subsistence level, There are strong echoes of such concer in current numan actions spontaneously generate orderiy social structures such as law, language, the growth of knowledce, and, yes, the market Selfishness, because ofits association ith industlousnese, woud thereby contribute to a theiving economy, Similar views came from many intellectuals of the era. The emphasis on individual freedom was marted to assertions about the need for freedom of trade. The emergent ‘ideology was markedly favourable to capitalist values and practice. It helped sound the death knell of mercanilist doctrines, fnot ofall mereantilist policies in practice. Moreover, ft fitted in with the Protestant theology that emerged from the Reformation—a set of ‘eligious beliefs ara free ofthe moral opprobrium thatthe Catholic church had heaped on commercial activities, Protestantism held that people would be judged by their faith rather ‘than their works. Acqusitive economie behaviour could be quite compatible with a pure ‘heartand faith in God, Wryy, one might say that a businessman looking into his conscience could readily find ‘that God had planted there deep respec forthe principles of private property? Feonomic Uberlsm draws these ideas together, stripped of the explicitly ethical ements Tt isnot altogether compatible with political Uberalism, which has a broader socal agenda, but they hare a concern with personal freedom and social order FonomicUberaism establishes a relationship between what is assumed tobe people's essential nature and their economic activites ts itinctve assumptions are: *tndividuaio: the individuals regarded asthe basic unt of society sono sound dam canbe made about any social interest that differs from the aggregation of individual interests * hedonism: individuals ar driven by sl-ntrest, seeking pleasure, and avoiding pain * rational: each individuals pursuit of self-interest requires him orher to weigh up the ‘ests and benefits of alternative courses of action and to choose that which promises the rostedventageoisuutcone * inert: people are basicaly ay, remaining ractive ules stimulated bythe prospect of personal gain* 1 we regard people inthis way, it isnot dificlt to see why the market is desirable arangement for dealing with economie matters. Individual preferences for goods and services can be expressed inthe marketplace, sending signals to the producers about what is wanted and whatisnotSelles compete with one anotherto supply the products tomeet the mand, and tat process of competition keeps prices at a minimum. Not all individual aspirations are necessarily met, but the market mediates between them to achieve effective compromises. tually advantageous exchanges occur. Economic resources are efficiently used. (CHAPTER 9. PRIVATE VICES, PURLIC VIRTUES: On the other hand . ‘Although economic iberalism played a key role in egitimising capitalist market relationships, ‘the classical political economists were not unqualified apologists forthe emerging capitalist system. That Smith had serious qualms about business practices and an ‘ambivalence towards nascent capitalism’ is evident fom a careful reading of is work” A deep suspicion is evident, forexample, in his observation that ‘people ofthe same trade seldom meet together... butthe conversation ends in a conspiracy against the publi or in some contrivance to raise prices! ‘What Smith favoured was a process of competition in the mazket €o limit such antisocial business behaviour, Its also important to note that, although Smith was unsympathetic to governments ‘wielding great economic power, his was nota simple advocacy of lisser faire. Inthe lectures on jurisprudence that he delivered at the University of Glasgow, he argued that the chief purpose of government is to preserve justice, and that this would require the state to protect ‘the individua’s personal rights, property, reputation, and social relations." In The Wealth of Nations, he argued that government must carry out important functions in providing defence against foreign invaders, maintaining public institutions (suchas those providing for ‘transport, education, and religion), and protecting citizens against injustices suffered atthe hands of other citizens. ‘Nor was Smith in favour of greater economic inequality, By the general standards ofthe ‘imo, an egalitarian sentiment canbe discerned in his writing, His was a vision of society in ‘hich all people would be making their personal contributions to ecenomic advancement, In his owm words, economic progress would stem from ‘the uniform, constant and uninterrupted effort of every man to better his condition’. ft would be from the grass-oots effort of the reat mass of people, rather than from particular leaders ofbusiness or finance, that economic progress would emanate. ‘Te must be bore in mind that Smith was writing about a very different economy from today's. The businesses were usually tiny by moder standards. What Smith saw as desiable was competition, not capitalism perse. He was an opponent, frst and foremost, of monopoly. He favoured markets but saw important oles for government He emphasised the need tohave {ndividual incentives, but did not support increased economic inequality, His views helped to undermine the Christian corporate ethic, but he was deeply concerned about the moral

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