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The macroeconomic perspectives of david ricardo karl marx and john stuart mill

History[ edit ] The classical economists produced their "magnificent dynamics" [3] during a period in which capitalism was emerging from feudalism and in which the Industrial Revolution was leading to vast changes in society.

The macroeconomic perspectives of david ricardo karl marx and john stuart mill

These changes raised the question of how a society could be organized around a system in which every individual sought his or her own monetary gain. Classical political economy is popularly associated with the idea that free markets can regulate themselves. Smith saw this income as produced by labour, land, and capital. With property rights to land and capital held by individuals, the national income is divided up between labourers, landlords, and capitalists in the form of wagesrentand interest or profits.

In his vision, productive labour was the true source of income, while capital was the main organizing force, boosting labour's productivity and inducing growth. Ricardo and James Mill systematized Smith's theory. Their ideas became economic orthodoxy in the period ca. Henry George is sometimes known as the last classical economist or as a bridge. The economist Mason Gaffney documented original sources that appear to confirm his thesis arguing that neoclassical economics arose as a concerted effort to suppress the ideas of classical economics and those of Henry George in particular.

Other ideas have either disappeared from neoclassical discourse or been replaced by Keynesian economics in the Keynesian Revolution and neoclassical synthesis.

Some classical ideas are represented in various schools of heterodox economicsnotably Georgism and Marxian economics — Marx and Henry George being contemporaries of classical economists — and Austrian economicswhich split from neoclassical economics in the late 19th century.

In the mid-20th century, a renewed interest in classical economics gave rise to the neo-Ricardian school and its offshoots. Classical theories of growth and development[ edit ] Analyzing the growth in the wealth of nations and advocating policies to promote such growth was a major focus of most classical economists.

Classical economics

However, John Stuart Mill believed that a future stationary state of a constant population size and a constant stock of capital was both inevitable, necessary and desirable for mankind to achieve. This is now known as a steady-state economy. In political economics, value usually refers to the value of exchange, which is separate from the price.

Market prices are jostled by many transient influences that are difficult to theorize about at any abstract level. Natural prices, according to Petty, Smith, and Ricardo, for example, capture systematic and persistent forces operating at a point in time. Market prices always tend toward natural prices in a process that Smith described as somewhat similar to gravitational attraction.

The theory of what determined natural prices varied within the Classical school. Petty tried to develop a par between land and labour and had what might be called a land-and-labour theory of value.

Smith confined the labour theory of value to a mythical pre-capitalist past.

Others may interpret Smith to have believed in value as derived from labour. Ricardo also had what might be described as a cost of production theory of value. He criticized Smith for describing rent as price-determining, instead of price-determined, and saw the labour theory of value as a good approximation.

Some historians of economic thought, in particular, Sraffian economists, [14] [15] see the classical theory of prices as determined from three givens: The level of outputs at the level of Smith's "effectual demand", technology, and wages. From these givens, one can rigorously derive a theory of value. But neither Ricardo nor Marx, the most rigorous investigators of the theory of value during the Classical period, developed this theory fully. Those who reconstruct the theory of value in this manner see the determinants of natural prices as being explained by the Classical economists from within the theory of economics, albeit at a lower level of abstraction.

For example, the theory of wages was closely connected to the theory of population. The Classical economists took the theory of the determinants of the level and growth of population as part of Political Economy. Since then, the theory of population has been seen as part of Demography.

In contrast to the Classical theory, the determinants of the neoclassical theory value: Classical economics tended to stress the benefits of trade. Its theory of value was largely displaced by marginalist schools of thought which sees " use value " as deriving from the marginal utility that consumers finds in a good, and " exchange value " i.

Ironically, considering the attachment of many classical economists to the free market, the largest school of economic thought that still adheres to classical form is the Marxian school. Monetary theory[ edit ] British classical economists in the 19th century had a well-developed controversy between the Banking and the Currency School. This parallels recent debates between proponents of the theory of endogeneous moneysuch as Nicholas Kaldorand monetaristssuch as Milton Friedman. Monetarists and members of the currency school argued that banks can and should control the supply of money.

According to their theories, inflation is caused by banks issuing an excessive supply of money. According to proponents of the theory of endogenous moneythe supply of money automatically adjusts to the demand, and banks can only control the terms e.

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Debates on the definition[ edit ] The theory of value is currently a contested subject. One issue is whether classical economics is a forerunner of neoclassical economics or a school of thought that had a distinct theory of value, distribution, and growth. The period 1830—75 is a timeframe of significant debate. Karl Marx originally coined the term "classical economics" to refer to Ricardian economics — the economics of David Ricardo and James Mill and their predecessors — but usage was subsequently extended to include the followers of Ricardo.

The period between 1830 and the 1870s would then be dominated by "vulgar political economy", as Karl Marx characterized it. Perhaps Schumpeter's view that John Stuart Mill put forth a half-way house between classical and neoclassical economics is consistent with this view.

Georgists and other modern classical economists and historians such as Michael Hudson argue that a major division between classical and neo-classical economics is the treatment or recognition of economic rent.

Georgists and others argue that economic rent remains roughly a third of economic output. Sraffians generally see Marx as having rediscovered and restated the logic of classical economics, albeit for his own purposes.

Others, such as Schumpeter, think of Marx as a follower of Ricardo. Even Samuel Hollander [17] has recently explained that there is a textual basis in the classical economists for Marx's reading, although he does argue that it is an extremely narrow set of texts. Another position is that neoclassical economics is essentially continuous with classical economics. To scholars promoting this view, there is no hard and fast line between classical and neoclassical economics. There may be shifts of emphasis, such as between the long run and the short run and between supply and demandbut the neoclassical concepts are to be found confused or in embryo in classical economics.

To these economists, there is only one theory of value and distribution. Alfred Marshall is a well-known promoter of this view. Samuel Hollander is probably its best current proponent. Still another position sees two threads simultaneously being developed in classical economics. In this view, neoclassical economics is a development of certain exoteric popular views in Adam Smith. Ricardo was a sport, developing certain esoteric known by only the select views in Adam Smith.

This view can be found in W. Stanley Jevons, who referred to Ricardo as something like "that able, but wrong-headed man" who put economics on the "wrong track". The above does not exhaust the possibilities. John Maynard Keynes thought of classical economics as starting with Ricardo and being ended by the publication of his own General Theory of Employment Interest and Money.

The defining criterion of classical economics, on this view, is Say's law which is disputed by Keynesian economics. Keynes was aware, though, that his usage of the term 'classical' was non-standard.

Some, such as Terry Peach, [18] see classical economics as of antiquarian interest.