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Adam Smith And Karl Marx

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Autor:  anton  29 April 2011
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Adam Smith, the father of economics, published The Wealth of Nations in 1776. Although it made little impact in its time, it conceptualised the economy in a radical new way: in terms of individual agents, acting out of self-interest. From an individualist perspective, he argued that people produced goods in order to make money, and made money in order to purchase goods they valued most. The exchange takes place in a market, where prices are set according to costs and the demand for the good. This was a self-regulating system which he described it as being controlled "as if by an invisible hand".

In his system, labour was the final measure of valueВ—wages (a cost) based on the needs of the worker, and rent on the productivity of land. The market acted as a communicator and coordinator (via prices), and a motivator for individuals, such that general welfare was achieved. Another important observation was that the division of labour into specialised functions allowed for far greater production than a single worker creating the entire product from start to finish (his example was from observing produciton in a pin factory).

As a consequence, he saw taxes as a distortion of prices, and thus an obstruction to the general welfare that the market could provide, if unhindered. At the same time, he allowed that there were things for which the market couldn't accomodate for (roads, sanitation, known as public goods), and which a minimal government should provide. Later economists built on this idea that there may be goods with externalities (positive or negative), that is side effects from their consumption or production.

Next, we have Karl Marx, who conceived of history as a struggle between different types of class. Class was defined according to the relations in the forces of productionВ—those in a higher position could exploit those lower. In the feudal mode of production, the lords did not directly control the tools or lands of the peasant, but had control over the product. In the capitalist mode of production however, the capitalist controlled both the tools and the product. Marx saw this development in capitalism as one which had a fundamental contradiction: it tries to squeeze more and more profits out of the consumers, who are also their labour, whom they are trying to pay less. As the worker became more exploited in this manner, Marx believed that the frustration would eventually be sufficient that workers would revolt, seizing tools, land, and produce to create a communist society.

This class struggle itself became an engine for social change in his understanding of history. History for Marx was a dialectical materialist process: dialectical because it consisted of opposing forces, materialist in its emphasis on economics and politics. Through his conception of history, he believed one could then understand the nature of social change and how to effect it. Although his belief was only partially and unsuccessfully realised, this conception of production and its role in creating haves and have-nots was to have a lasting impact on economics and development studies. Many branches have drawn upon aspects of his ideas (and later Marxists) while rejecting some aspects. Clearly the formulation of class may have had applicability in the 19th century, but is a much more complicated matter today. At the same time, the identification of exploiter and exploited has helped to understand aspects of inequality that we find today.

John Maynard Keynes (later Lord Keynes) would be the most influential economist at the time when development studies became a field in itself. Studying the causes and consequences of the Great Depression, Keynes had recommended that the government "push" aggregate demand (that is, overall demand for produce in the economy) through directed spending in key areas. The theory was that when someone spends, money in the economy, that money passes on for a while before being completely diminished.

We now have a very brief overview of the idea of development, its conception and application, and early trends toward solving problems in the political economy. Development can mean many things to many people, but for the officials of the newly independent states, it largely meant some form of economic development, which entailed mimicry of either the West or the socialist states. The early development theorists could only look back on what had been tried up to then, just as we can only look back with our privileged view from a later vantage. The Keynesian model of government spending had been the most successful policy to date, though many saw promise in the socialist system. However, when it was attempted in the developing countries, it met with mixed results, and in turn led to a return to the neo-classical framework building on Smith that focused on market efficiency. In the next piece, we shall look at indigenous efforts to formulate development policies, the import of policies from the West and socialist states, and how these worked (or not).

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