History Of Economic Thought
Assoc. Prof. Dr Zainizam Bin Zakariya
Topic: Critically assess similarity and differences in the classical and mercantilist school. On what points do they agree and disagree
Name Matric No
Izzaty Husna Binti Mohd Isa D20151070180
TABLE OF CONTENTS
Introduction Defination Of Classical And Merchantlist Economic Scholar of classical thought
Scholar of merchantalist thought Similarity of classical and merchantalist school Differences of classical and merchantalist school Introduction
The essay is about Critically assess similarity and differences in the classical and mercantilist school. This is about how the classical scholar works to find the good things to evaluated the economic in that time to make human satisfied to live and did not have the problem to manage a business. This is also do at mercantilists scholar, like Adam Smith and also David Hume to generated the theory of economic to make sure that the economic in a good time and exclude government interevent in the economic. So, the essay is find the similarity and differences classical and mercantilists school.
Defination of classical and merchantalist economic.
Classical economic is the ruled economic thought for about 100 years, that was the first used by Karl Mark in 1818 until 1883 to describe about economic like Adam Smith, David Ricardo, John Stuart Mill and Thomas Robert Malthus. Classical school is also the first school economic thought in assosiated with the 18th Century Scottish economists and also British economists. The term “classical” is refer to work finish by a group of economists. Its also the major of intellectual achievement. The classical were mostly critic for being unable to see the importance of the short- run changes that the classical were taking.
Merchantalist is the economic theory and practice common in Europe from 16th century until 18th century which is to promoted governmental regulation on a nation economy for purpose of augmenting state power the expense of rival national powers. The school that the most popular at merchantalist thought is Mun, Malynes, Davenant, and Colbert and Sir William Petty. Merchantalist thought also contain many interlocking principles. Mercantilism also appeared between the Middle Ages and the period of the triumph of laissez-faire.
Scholar of classical thought
Adam smith is the brilliant founder of the classical school. He was born in the seaport and manufacturing town of Kirkcaldy, Scotland. The famous book that he created is The Wealth of Nations and The Theory of Moral Sentiment. The Wealth of Nation were highlight on laissez-faire and the harmony of interest, besides the division of labor and the economic laws of a competitive economy.
On Adam Smith, the important that incfluence thinking of human is general intellectual climate of his time. Then, Smith was influenced by the physiocrats, particulary Quesnay and Turgot. He also physiocratic system that all imperfections and perhaps the nearest approximation to the truth that has yet been published on the Political Economy. On the book of The Theory of Moral Sentiments is about unsocial and social passions. The Example based on book Adam Smith is former are hatred and resentment, it is because they were divide our ympathy betweet the person who had a feel and also had the object. It incude the interest of the person are contradictory.
Then, on the book also story about the strong person always had a strong sympathy for the benevolent passions this because of the human appear in every respect agreeable. It is also they disposed to identify more with joy than with our sorrow and also parade our riches an conceal our poverty. Much of the toil and bustle undertaken no to supply our neccestics. The respectful atrention in the world more strongly directed towards the richer and the great then the wise. The ambitious man will have so many means of commanded the respect and admiration of mankind and will be enable to act superior propriety and grace.
People means by Adam Smith is the human who can exist only in society. They exposed the mutual injuries and they need to one another assistance. That is to reciprocally offer out of love, gratitude, friendship and esteem the society and happy. But, it cannot exist among those who are in all time ready to hurt and injure one of another. That is the justice.
Adam Smith on book The Wealth of Nation is about the division of labor, the harmony of interest and limited government. The idea is to specialization of the labor force, essentially the breaking down of large jobs into many tiny components. In facts, labor cannot switch the task during the day further to saving time and money. It also increases the quality of output produced. Labor make an important character on economic and also in business. Each labor can increase the dexterity in developing or performing the task that given by separately. The time is also saver if the labor makes only one task person from make many jobs by one labor. Then, machinery can also be invented to increase the productivity once task have been simplified and routine through the division of labor.
Besides, the harmony of interest and limited government is also in the book of The Wealth of Nation. Its is about the invisible hand and implies the intrusion by government into the economic are unneeded and undesirable. According to Smith, government are wasteful, corrupt, inefficient and the grantors of monopoly privileges to concurred the whole of profit the merchant. Smith also distrust the government and the government cannot interevent the business of merchant. Then, Smith belief in the harmony of interest and laissez-faire to international trade. Also, individual and private families specialize in the producing goods for which they have the advantages and trade for goods.
For the good to government, Smith recommend the taxation. But there are the guide maximum goods taxes, it is taxes should be proportional to the revenue enjoyed under protect of country. Then, the taxes must predictable and uniform to the time of payment. Lastly, the taxes should be levied in the time and n the manner of the convenient to the contributor. Smith also discussed detailed about the value, it is related on labor theory of value in a primitive society and also value theory on an advanced economy. Then, Smith discussed about market price, wages, profit, rent, the role of money and debt and also about economic development.
Thomas Robert Malthus
Thomas Robert Malthus first that introduced the topics population growth, the methodology of GDP accounting, value theory, diminishing returns, land rent and aggregate demand. On the population theory, Malthus explain about the relationship between the growth in the food supply and in the population. The country that increase the population than food supply and it unchecked leads to vice or misery. The doctrine of Malthus is, the natural sex instinct people that being at the fast rate.
Population increase in geometrical progression and double itself every 25 years. On geometrical progression, population successive periods of 25 years will be 1, 2, 4, 8, 16, 32, 64, 128 and 256 an after 250 years. Besides, the food supply increases in a slow arithmetical progression due to the operation of the law of diminishing returns based on the supposition that the supply of land is constant. Thus, the food supply in successive similar periods will be 1, 2, 3, 4, 5, 6, 7, 8, 9 (after 200 years). And the last is population tends to over the food supply.
Malthus also control the population and suggest the preventive checks and positive check. At the preventive check, the man s the main to control the birth rate. Such as late marriage, celibacy and also moral restraint. Besides, the positive checks are operating in the form of vice, misery, famine, war, disease, pestilence, floods and other natural calamities. According the Malthus, positive checks is operated in the famine, war, disease, pestilence, floods and other natural calamities which tend to reduce population and thereby bring a balance with food supply. But the preventive checks is always in operation in a civilized society.
David Ricardo is the contemporary of Malthus. Ricardo rallied an ardent band of scholar who enthusiastically disseminated his ideas. The theory of Ricardo develop is theory of land rent and related on theory of diminishing return. The two theory is relevant in important topics. It is the theory of exchange value and theory of distribution of income. On theory of diminishing return and rent, Ricardo recall the concept of diminishing return on agriculture dates back to Turgor. But on 1815, Ricardo applied the principle into the land rent.
The mean of rent on Ricardo is the portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil and he modified include the rent of the return on long – run capital investment. He also minds that rent arise at the both extensive and intensive margins of agriculture. On the theory rent, he said the rent at the extensive margin of cultivation. It means that the produce from marginal land will bring in enough revenue to covered all the expenses of production plus the average rate of profit the investment in labor and capital.
The value of produce depends on the labor requirement per unit of output at the productive land that used. The good land produces a surplus that taken by the landowner as a rent. On the rent at the intensive margin of cultivation, Ricardo arises from the cultivation of land. In the success unit in labor and capital are added to a piece of land while technology is remaining constant, each can add the unit of investment and also will add less of output then previous unit. The unit of labor and capital must pay for it self to provide an average of rent of profits. And it totally yields a surplus return in rent.
Ricardo on the theory of exchange value and relative price, Ricardo concerned on exchange value. He said that a commodity to have an exchange value, it must a value that provided. Utility is a subject that was subjective and the satisfied that power but it is not the exchange value. Exchange value include depends on the labor time necessary to produce. In exchange rate, there 3 things that point, it is about differing capital -labor relatives between industrial. Then. Differences in labor quality, that meant not all labor is of equal quality.
The effective labor makes a productivity in hour and works than he lower skilled. Besides, wages, profits and rent also recommend in the Ricardo theory of exchange value. This is depending on quantity of labor. The productive labor naturally will have received higher wages than the unskilled labor. Ricardo finally conclude that rent does not figure into the exchange value of a commodity. It is because rent payment does not influence the prices of goods. The relative value by theory Ricardo said that labor is a foundation of the value of commodities, market prices deviate from value price but it is temporary fluctuation on supply and demand.
The distribution of income by Ricardo, is about wages, on wages, he explains about the natural price of labor is the price that given the habits and customs of the people. The natural price also depends on the price of necessities. Then, he explains about the profit that in different fields of enterprise within state tend to equalize. Besides, about rents, he told that rent is between the landlord and the rest of society. The contemporary representation is the simple that Ricardo distribution by the way of the graphical representation.
Bentham is the overlapped David Hume, the theory that he develop is utilitarism
Scholar of merchantalist thought
Similarity of classical and merchantalist school
Differences of classical and merchantalist school