Important Writers: 1. Adam Smith (1723-1790) - Wealth of Nations, 1776 2.

Thomas Robert Malthus (1766-1834) an Essay on the Principle of Population, 1798. 3. David Ricardo (1772-1823) On the Principle of Political Economy and Taxation, 1817 . 4. John Stuart Mill (1806-1873) Principle of Political Economy, 1848. 5. Karl Marx (1818-1883) Capital, Volume I, 1867 6. NeoClassical -1870-1900.

KARL MARX (1818-1883) An economist, philosopher, sociologist and revolutionist. Studying law and interested in philosophy (doctorate). Journalist prob. Radical views Expelled Germany, Paris, Brussels. Tremendous intellectual powers.

 Writing inspired generations of economic thinkers & transformed entire societies. Beginning 1990s, many societies began to abandon Marxian ideology & experiment transition to Capitalism. Many of these transition remain rocky and with turmoil. Analyze the economy as well as to promote the changes in society. Unlike the Classical economists, Marx advocated a fundamental revolution in the society & economy. Popularly associated with the economic system of socialism & communism.

 Das Kapital or Capital. Marxs economic theory is an application of his theory of history to the capitalist economy. Classical economists - static equilibrium of the economy. Marx - the dynamic process of change. Paul M. Sweezy (Marxist economist) - Marxian economics is the economics of capitalism and capitalist economics is the economics of socialism. Oskar Lange Marxian & orthodox economic analysis shld be looked as complimentary rather mutually exclusive. Orthodox classical theory understanding the operation of the economy. Marxian theory understanding the evolutionary development of capitalism.

Communism Manifesto (1848): Abolition of property in L & application of all rents to public purposes A heavy progressive or graduated inc. tax. Abolition of all rights of inheritance. Confiscation of property of all emigrants & rebels. Centralization of credit by a national bank with state capital & an exclusive monopoly. Centralization of the means of communication & transport by the state. Extension of factories & instruments of production owned by the state. Equal obligation of all to work. Combination of agriculture with manufacturing; gradual abolition of the distinction bet. town & country by means of equitable distr. of the pop over the country

 Growth emphasized on the importance of technology and increasing returns Firms get bigger n bigger for technological reasons.

 Societies divided analytically into 2 parts. Forces of production (FOP): the technology (manifested in L skills, scientific knowledge, tools & capital goods). Inherently dynamic. Relations of production (ROP): social relations bet. people & things or property relation. Static & past-binding (reinf - art, literature, music, philosophy, jurisprudence, religion & oth cultural forms its purpose is to keep intact the ROP status quo In the beginning of historical period there is harmony between the forces & relations of production, but over time the changing forces of production bring contradictions in the system, as the existing relations of production (institutions) are no longer appropriate to the forces of production (technology). These contradictions will manifest themselves in a class struggles. Finally, intense social revolution (a new set of relations of prod. is brought into).

The history of all societies is a history of class struggles The Communist Manifesto
The Marxian theory of history traces the development of society from feudalism capitalism socialism and finally communism.

 During the early fuedal period, the ROP were appropriate to the existing FOP. However the changing FOP soon destroyed this harmony, as the institutional structure of feudalism became incompatible with developing agricultural technology, increased trade and beginning of manufacturing. These conflicts were manifested in a class struggles and finally produced a new set of ROP, capitalism. Capitalism, like feudalism, contains the seeds of its own destruction, as conflicts inevitably develop with changes in the forces of production. With the fall in capitalism, a new set of ROP will emerge, called socialism, which in turn, finally give way to communism.

Socialism & Communism Soc. & Com. similar meaning todays world. Soc. & Com. stages that will occur in the historical process. Soc a set of ROP that will follow capitalism, contains some remaining vestiges of capitalism. The working class (proletariat) now owns the means of production (capital). A remaining vestiges of capitalism reflects that the economic activity is still organized through the use of incentive system (rewards must be given to induce people to work). Com. - emerge from the socialist economies. Com. people no longer be motivated to work by monetary or material incentives. Social classes disappear. Com - a classless society. Each person contributes and earns an income according to his/her ability.

 Some find the idea of ideal com. desirable but doubt its practicality. But why would contradictions cease with com.? Would it not be more reasonable to conclude that as long as the FOP remain dynamic, contradictions will always exist within any society? The Soviet Union no longer exist, the emerging republics are attempting with difficulty to institute market economies, Eastern Europe experiencing dramatic changes, China in which communism remain in control has accessed to stock market, private property and trade. Marx was wrong in predicting the increased class division. After the revolution in Russia, the class structure did not disappear. New class emerged nomencultura (bureaucracy) which maintained control of the large aspects of the economy.

Marxs Economic Theory Marxs system is a mixture of philosophical, sociological and economic analysis. The fundamental FOR & thus the institutional structure of the society is the FOP (technology). Capitalism a society of 2 classes: capitalists & L; Wage bargain takes place commodity prices theory.

Emphasized the deterministic role of technology and increasing returns. Firms would get bigger and bigger for technological reasons.

Marxs Analysis of Capitalism A reserve army of the unemployed A falling rate of profit Business crises Increasing concentration of industry into fewer firms Increasing misery within the proletariat

Using Classical theory, Marx assumed that: A labor cost theory explaining relative prices Neutral money Constant returns in manufacturing Diminishing returns in agriculture Perfect competition A rational, calculating economic man A modified version of wage fund doctrine Rejected fixed coefficient of production, full employment & Malthusian pop. Doctrine.

 Marx & Ricardo use the similar basic analytical framework. The chief actor in the Marxian model as in the the Ricardian model is the capitalist. Marxian the capitalists search for profit and reaction to changing rates of profit leads to economy destruction. Ricardian capitalist promotes the social good & harmonious economy.

 Rejected Malthusian pop. theory Classical K acc. Ld real wage if w continued to rise with K acc. profit . Malthusian theory (the existence of profit maintain) w do not rise to a level profit cease. Any real wage pop. push back w at subsistence level. Marx there is always an excess SS of L in the market (the reserve army of the unemployed) which depressing wages & keeping surplus & profit positive. The capitalists search for profit leads them to introduce new machines, increasing the K intensity in the economy. Machines replace human in prod. processes. The workers displaced by the new technology indirectly recruitment as anew member into the unemployed labor market. Children finishing school & housewives with family responsibilities concern, may not easily find jobs, become part of the reserve army of the unemployed.

During periods of expanding business activity & K acc., w increase & the size of reserve army (unemployed L) diminishes. The increase in w eventually leads to a reduction in profits. Capitalist reacts by substituting machinery for L. The unemployement created by this substitution (K for L) pushes down w and restores profit.

Falling Profit The destruction of capitalism is the falling rate of profit (Smith, Ricardo & Mill). K acc. means more K will bid for L, forcing up w & reducing the size the reserve army of unemployed & will fall. Capitalists will react by substituting machinery for L. Increasing the qtty of K will push further even lower. Competition in commodity market will also result in a continuous decrease in . Capitalist will keep trying to reduce cost of prod. In order to sell at lower prices. These lead the capitalist to search for new, lower-cost techniques of prod. That always involve an increase in K & this result in a falling rate of profit.

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