Sample Essay on Early pre-classical economics and Late pre-classical economics

Question 1

Pre-classical economics is divided into two: early pre-classical economics and late pre-classical economics also known as the mercantilism. The earlier was dated in the period 800BC to 1500 while the later took part between 1500 to 1776. During the early pre-classical period, the economic systems were not well developed, and that explains why the pre-classical economics did not extend their analysis into a comprehensive economic system. Their ideas were affected by the states of the societies like feudalism.

As the feudal systems became self-sufficient, the communities gradually gave way to the system of merchant capitalism. The system was characterized by increased trade activities, merchants emerging as key figures in business, and national states obtaining powers as they acquired colonies. Pre-classical economists’ shifted their ideas from feudal concepts to directing their focus to promoting nationalism, giving importance of merchants, and justifying the policies of economics.  In the classical period, the society was undergoing many changes and the economists begun reorienting economics from personal interests to national interests. The classical economics concentrated on promoting growth in the wealth of nations. Adam Smith was the father of classical economics. He did not compose original ideas but instead, edited and organized other economists’ ideas. He investigated ideas, sensibly criticized them, and coordinated judgments that were already established. All his ideas were all contained in his book the “Wealth of Nations.” He believed in the science of law and emphasized that agriculture was the only industry that could grow the wealth of a county (Friedman 3).

Question 2

Following Smith are other Economists who gave significant contributions to classical economics. Some of those economists were James Mill, David Ricardo, Bentham and, Malthus. Mill’s most important contribution was based on his friendship with Ricardo who he met through a publication of “Commerce Defended “in 1808. Mill and Ricardo formed a rapport on economic questions which had been omitted by Bentham regarding Ricardo’s related contributions. Bentham’s “Defences of Maximum” (1801) had advocated for various restrictions put on the price of corn which contradicted with Mill’s essay about corn trade which opposed all forms of restrictions and interferences in the free trade. Mill favored private property and free trade and argued that the system needed to be adequately tried. Bentham views almost contradicted with what was traditionally accepted, but Mill associated his views with Smith’ views and later Ricardo’s. Bentham raised questions regarding his work. In his book principles of morals, he asked, “what is Liberty?” (Mill, 331) He saw liberty and laws as political achievements. He further added that they were important for the benefit of a greater number.

Mill and Ricardo had discovered that they related in most of their views and especially during the controversy of bullionist in 1810-1811. Ricardo had raised monetary questions which begun with the revival of the controversy.  He later in 1816 made a publication named “Economical and Secure Currency.”  Ricardo’s influence came from Thomas Malthus who wrote an essay about principles of populations which was published in 1798. Malthus argued that as food increased, the population also increased and this kept the common people at the state of insufficient food. Ricardo’ thinking was mostly a combination of Malthus’ and Smith’s economics. In addition to that influence, Mill encouraged Ricardo to expand his economic studies and publish “Principles of Political Economy.” In this publication, Ricardo addressed the increase in population allowed employers to lower wages. He developed a theory that food prices were increasing which prompted industries to raise wage levels to ensure the survival of workers (Mill, 331). However, they gave their workers just enough to cover their bills in order to ensure they remained at subsistence level. He blamed landlords for contributing to stagnating economy because they used their wealth for luxuries instead investing it.

Question 3

Das Kapital was a major work of Karl Marx, developed in the period 1818-1883. In this work, he expanded his theory of capitalism spelling out the value of surplus labor and its relation to capitalism.  In his view, Marx provided capitalism would eventually give way to socialism. He speculates that private ownership of good and services would always be in conflict with ‘socialised’ characters and transformation to collective ownership of production would be natural and inevitable (Marx 5). Gradually, the capitalism system would be replaced by the working system through inheritance of economic and political power. Karl Marx developed the theory of Alienation where he depicted that the worker under capitalism was suffering from four forms of alienated labor. One of them was the product which was determined by the capitalist, and therefore the worker had no control over it. Secondly, the worker was suffering from the process of production by being controlled and told what to do. Thirdly, is suffering from himself because at work he belonged not to himself but someone else, and finally, suffering from other workers since he was pitted against them in competition for higher wages.

Karl Marx theory of value was wholly centered on the problems of capitalism. The theory has been useful in many economic disciplines and most importantly helps in making Marx’ Critique of capitalism valid. The minor problems of the theory is that certain consideration ought to have been incorporated like the value of natural resources and other things like works of art which are done by few laborers but priced at high prices. The implication of the theory is that capitalists use labor-saving technologies for high production, but since they are relatively constant, they drive down profits. This is because, once the technology becomes widely used, the value of commodity decreases. This is true in the general economy but may not be true to some industries.


Question 4

Neo classical economics focus on the theory of consumers demand. It is based on the availability of utility which is presumed as quantifiable and additive. The utility is quantified regarding funds.  Consumers are realistic, and they measure, prefer and match up varied utilities of merchandise and in turn, aspire at optimizing them. The consumer is usually informed about the preference of merchandise available, and his choices are usually certain. The consumer is also aware of prices of various merchandise. Consumers optimize utility by buying products or services that are either most cost effective or those with the highest level of satisfaction subject to various constraints. Consumers, therefore, optimize utility by choosing products and services which most satisfy them

Neoclassical equilibrium

Fig 1

Neoclassical equilibrium is obtained by combing aggregate demand(AD) and aggregate supply(AD) as shown in the figure.AD is highest at the lowest price while AS is highest at the highest price. Equilibrium occurs at the level when the total planned expenditure on output is equal to the amount of products the producers are willing and able to supply. That is the output Y* and P*.

Fig 2

Other factors apart from price and supply can change which can cause a shift in demand. Examples of these factors include an increase in wages or expansion of monetary policy. These factors increase consumers buying power hence shifting the demand curve to the right from AD to AD2.The new equilibrium becomes P2 and Y2. At this point increase in demand with supply constant caused supplier to increase the price to P2.

There are also factors that can lead to a shift in supply like government subsidies on production. This causes a shift in supply curve to the right. Due to excess supply, suppliers are forced to reduce prices to P2 in order to increase demand. The new equilibriums become (P2, Y2).

Works Cited:

Friedman, Milton. “Adam Smith Declares an Economic Revolution in 1776.” THREE in ECONOMICS (2015): 3.

Marx, Karl. Das Kapital: Capital. Seedbox Press, LLC, 2015.

Mill, J. “Mill, James, and Ricardo.” The Elgar Companion to David Ricardo (2015): 331.