Adam Smith, David Ricardo or Karl Marx are known for many as the pioneers of contemporary economies. Their Work and researches were the bases of most of nowadays economic models used by countries around the world. Adam Smith, David Ricardo and their followers were labeled as the classical economists when later on Karl Marx and his followers were labeled as the Marxists. These two economic schools were some of the biggest in history, but yet differed in many ways. Through this paper, we would discuss the says of the Classical and Marxism schools concerning their views on wages, their different opinions about the theory of value, their sides about capital accumulation and finally the different point of view of the schools regarding the diminishing returns.
Those who have the first systematic idea in the field of economics are those who have adopted the mercantilist view. Along with the New Age, the feudal system has begun to trade, which is expanding and gaining importance for the economy based on agriculture and trades. While trying to explain economic events, they were not affected by moral and religious authorities. The Mercantilist thought has raised new views on money, interest, foreign trade, the intervention of the state in economic life, the economic policy of the protectorate and the big markets. Mercantilism, representing a new economic understanding, is a political doctrine rather than a theoretical one.
Before developing one of the most important economic school of thoughts, John Maynard Keynes (1883-1946) was also associated with the Cambridge approach. Keynes originally was a proponent of the quantity theory, until he criticized it in \citep{book:Keynes1936}. The Keynesian theory has a much broader scope compared to that of the classical quantity theory; despite its generality, it yields fruitful results concerning the relation of money supply and prices. \subsection{Keynes critique on the quantity theory of money} In the classical theory, changes in the quantity of money do not affect interest rates, and thus are channeled directly in the level of prices. The starting point of Keynes argumentation is that, in the short run, money supply
s “Labour is the real measure of the exchange value of all commodities”. This is the famous labour theory of value, as an extension of this theory Adam Smith he went to explain price as Natural Price and Market Price. Natural price is the price that covers rent, wages and profit expended in production and marketing of the product. The increase or decrease in the natural price depending on “effectual demand” (demand of those who are willing to pay natural price) is called market price, when this happens there will be an exceeding production of this product so as to meet the demand and thus the price will be brought down to its natural level. Thus Adam smith explains the natural price is always the central price around which the prices of all
The two prominent names: Weber and Durkheim; considered the “founding fathers of Sociology”. Their writing in the late 18th century considered to be revolution and brought profound changes in the modern life. Although, both of these men studied the society, its structure and trends, but their methodology and theoretical approach were different. In the early years of his life, Durkheim was influenced and impressed by the evolutionary perspective of Herbert Spencer and later, with the works of August Comte. Whereas, Weber owed his approach much to the Neo-Kantian Philosophy.
Although Ricardo explained the determination of land rent through “ differential return” approach and not on the basis of direct demand and supply of land, yet in Ricardian theory it is the forces of demand and supply of land which determines the rent of land . Like modern economist Ricardo also believed that demand for land is derived demand, it is derived from the demand for the produce of land. In the Ricardian theory with its differential approach, increase in the population of country raised the demand for the corn and brings about rise in the land rent. In the modern approach based on direct interaction of demand and supply, the increase in population will shift the demand curve for land upward and thereby will push up the rent. Thus, the demand- supply approach of the modern economist and differential return approach of Ricardo are alternative explanation of the same phenomenon and are in no sense contradictory; in both approach forces of demand and supply play a crucial role in determination of rent.
Amongst the most influential and prominent economists of the last few centuries, Adam Smith and Karl Marx, are noted for their distinct theoretical contributions. In his watershed Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith proposed that the free market, where producers are free to produce as much as they want and charge consumers the prices they want, would result in the most efficient and desirable economic outcome for consumers and producers alike due to the “Invisible Hand.” The rationale for his proposal was that each individual would try to maximize his own benefit. In doing so, consumers would only pay as much as or less than they would value the benefit derived from a good, and producers would only sell
Classical economics emphasises the fact free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession.
In this paper, I will be addressing the different types of macroeconomics, with a focus on the classical and the Keynesian models and the differences that exist between them. I will finish the essay with the new economics models that came after the two early mentioned ones, mainly from the 80's. Before going to the differences, a brief history of the macroeconomics would help understand what each model emphasizes. The classical model is the oldest model and has its origin since centuries. Probably one of the major contributors to the classical economics is the economist David Ricardo followed by J-B Say among others.
Karl Marx introduced the theory of class struggle during the industrialisation period that emphasised on one’s financial status. However in this contemporary society, Marx’s monolithic theory fails to encompass other aspects of social life. Building upon Marx’s theory of class struggle, Pierre Bourdieu sets out to rethink the factors involved in the stratification of classes. The addition of cultural capital to economic capital was amongst the many capitals Bourdieu suggested in determining the class of an individual in this society where ‘capital’ is interpreted as a “set of actually usable resources and power” (Bourdieu, 1979, p.114) that allows one to invest and gain returns. Economic capital is wealth and income one accumulates, while cultural capital is the “possession of knowledge, accomplishments, formal and informal qualifications embodied by individuals” (Johnson, 2009, p.51).