The 1st ever economist was Adam Smith. He wrote “The Wealth of Nations” which explored and answered the question “why is one country richer than the other?” He came to the conclusion that wealthy countries are characterised by free individuals and free trade. He especially went into analysing why China was so poor when it had a wealth of gold and oil and said it was due to too much government intervention.His philosophical work mirrored Hume’s ideas and therefore (surprise, surprise) was fairly cynical. In this view he stated that there was in fact no altruistic deed as they are done purely for an ego buzz, etc. People are constantly calculating what gives them the most pleasure whilst minimising pain. “The Law of unintended circumstances” in fact ensures that any conscious act which is carried out to benefit someone else will only end in disaster by harming them and yourself. You must allow people to be economically free.
David Ricardo held the opposite view. Whereas Smith fixated
on the idea that value comes from trade, Ricardo held a more metaphysical
ideology. He said that there is a spirit of value. Coal itself has no value; it
only arises when human beings apply conscious effort to it. This takes us to
the Labour theory of Value.
Explored last year, Malthus crops up again this year. His
philosophy is rather miserable and perhaps makes even Schopenhauer look happy
in comparison.His “Iron Law of Population” follows that the human species
will inevitably starve to death. He describes humans to be like bacteria who
will consume everything they encounter, and eventually will eat all their
resources. This theory is backed by the
fact that about 70,000 years ago the human species was very close to extinction
with only 5-6000 humans left on the face of the planet. Even now, the UK is exactly 4 days away from
mass starvation, because we constantly rely on others for our food source. The
public usually goes mental and rushes to the supermarkets to stock up on any
product that is rumoured to be in short supply for a while. Imagine then that
if there was a shortage of petrol. No goods could be delivered as everything
depends on transportation; even the machines in factories making the products
would be in trouble as they are also run on petrol. We’re practically eating
the stuff.
So Malthus went onto say that marriage and a lack of sexual
contact (contraception wasn’t really around in those days) are the only things
that will prevent starvation. Marriage seems like an odd one but in those days
a man would not get married until he owned his own farm (unless he managed to
do it illegally). This way he would be able to definitely provide for himself
and his Mrs During these times women were too busy giving birth to work so thank
God for feminism and contraception. They had a massive hand in stopping
overpopulation.Modernist laugh at Malthus as he doesn’t take into account
that every mouth to feed is also an extra pair of hands to work. However,
Malthus is coming back into fashion due to climate change. The cost of decent
food is extremely high and low level malnutrition is becoming a huge problem.
Marx’ economical ideologies are a mixture of Ricardo and
Malthus'. Labour adds value to objects but wages will always decrease due to
population increase. The fatal flaw with a market obsessed with profit is that
people who grow food won’t be able to buy it.I will attempt to explain this through “the widget theory”,
hang in with me, this may get slightly confusing. Imagine that all value comes from a widget. A labourer goes
into a widget factory to make widgets. Workers make $10 per widget and the
owner takes 50% profit. The worker therefore gets paid $5. The value of a
widget however is $10 so the worker is in fact unable to afford one. As nobody is buying widgets because they can’t
afford to there is a widget crunch and the widget is lowered to $5. However,
the labourer’s wages are therefore also cut in half to $2.50. He still cannot
afford the widget. This leads to widget
crunch 2 and so forth until workers begin a strike and start burning down shops
and factories.
Eventually workers were sacked and replaced by machines and
the company is more profitable. Although about 1 out of 10 workers would get a
job managing and fixing this machinery, the rest were made redundant.
Capitalism completely revolutionises everything as everything must be
constantly innovated or the company will risk success. The iron law of wages states that a company
must find an increasing number of employees for minimum wages.
In 1848, there was a big political crisis. Millions of
people were in uproar at the factory system.
In 1849, Gold was discovered to exist in huge quantities in
California and Australia and people began to leave for work. These refugees
were the brains behind the likes of Budweiser and Hamburgers.
In 1844, the bank of England came about. There was now
officially a machine for printing money.
The currency worked in such a way that if one was to borrow
£10, you would give an imaginary IOU. This IOU would be used by the bank to get
another £10. Suddenly there is twice as much cash. The whole idea is based on a
confidence trick. The bank would only accept your IOU if you were deemed
trustworthy.
In 1844, IOUs were based on Gold. The amount of money in
England now became based on Gold. The widget crisis was now essentially over
because the worker can now borrow the other $5. Ironically, the value of gold
is based on Greek mythology and it is in fact intrinsically invaluable.
Adam Smith believed that money has no effect on human
behaviour but was just a mechanism of keeping score. The modernist theory is
that money has an actual effect on behaviour.
In the 1930s, all the wealth made from the Industrial
revolution was threatened, and there was mass unemployment. The 2nd
world war solved this depression and everyone stopped the gold superstition.
The 50s, 60s, and 70s, were based on the Keynesian system.
Here, unemployment was dealt with by giving the employee money to employ
certain people. The system is based on
the idea that Government intervention in the marketplace is the best method of
ensuring economic growth. A massive example of this is the NHS. This idea is in fact the complete opposite to
Adam Smith’s notion that all poverty is the result of too much government
intervention. This is perhaps one of the reasons contributing to why Britain is
currently in so much debt.
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