SlideShare a Scribd company logo
1 of 30
B416: The Evolution of Global
Economies
Lecture 4 : Capitalism, Adam Smith &
Marxism
Learning Outcomes – Adam Smith
Adam Smith
- Criticism of Mercantilism
– Absolute Advantage, Basic Principles &
Assumptions of Capitalist Model
– Evaluation & Critique of the Classical Model
Carl Marx
- Background
– Evolution
– Characteristics
– Critique
Page 3
Adam Smith (1723 – 1790)
Scottish philosopher, considered by
many to be the founder of modern
economic science as we know it.
Famous for the ‘invisible hand’, that
is how people pursuing their own
self-interest actually benefit the
society as a whole, and the
advantages of increasing
‘specialisation’. Major publications
are ‘The Theory of Moral
Sentiments’ (1759) and ‘An Inquiry
into the Nature and Causes of the
Wealth of Nations’ (1776).
Page 4
The Wealth of Nations (1776)
Adam Smith’s Criticism of Mercantilism
• He was making a political argument, NOT an economic one.
– Part of the argument was for new economic policy, but.
– An essential part of the argument was for new social and
political arrangements.
• He argued that the basic unit for social analysis should be the
nation, not the state.
• He was against the belief that trade was a zero-sum game
– It was a positive-sum game.
– Both nations gained.
• Argued that mercantilism lowered a country’s standard of living.
• Advocated free international trade.
• Emphasized advantages of specialization and international division
of labor whereby nations specialize in the production of only a few
goods.
Adam Smith’s Basic Capitalist Principles 1
1. Goods and services are produced for profitable exchange.
2. Division of Labour is key.
3. Laour is the basis of wealth.
4. The division of Labour implies economic interdependence
5. Human labor power is a commodity for
sale  LABOR IS THE SOURCE OF VALUE
Businesses Households
Goods & Service
Labor & Investments
Consumer Spending
Wages
Adam Smith’s Basic Capitalist Principles 2
6. The “Invisible Hand” of the market
• Problem  How do we survive in a world where we
must depend on many others, but where humans
are by nature self-interested individuals??
• Solution  the free market, while appearing chaotic
and unrestrained, is actually guided to produce the
right amount and variety of goods by a so-called
“invisible hand.”
• Therefore, the basic
market mechanism is
self-regulating!
Adam Smith’s Basic Capitalist Principles 3
7. Individuals seeking success are
driven by self-interest  Profit
Motive
8. The Law of Supply and Demand
• Individuals who are free to
pursue their
self-interest will produce
goods and services that
others want, at prices others
will be willing to pay.
Adam Smith’s Basic Capitalist Principles 4
9. Law of Competition
The competitive market system compels producers to
be increasingly efficient, and to respond to the desires
of consumers.
10. A social division of labor will maximize the satisfaction of
individual wants and needs, given scarce resources.
11. Government should interfere minimally with the free
and efficient workings of the market
– Laissez faire [“Leave things alone.”]
Adam Smith’s Classical Capitalist Model Assumptions
• Resources cannot move between countries.
• There are no trade barriers.
• Exports must pay for imports, i.e., trade must be balanced.
• Markets are self-regulating systems for the orderly
coordination of the division of labour.
• Labor is the only relevant resource.
– Labor Theory of Value states that the pre-trade price of a
good is determined by the amount of labor it took to
produce it.
• Constant returns to scale between labor and output prevails.
– Constant returns implies a fixed ratio between the labor
used and the output level produced.
Absolute Advantage
• Absolute advantage is the ability of a country to produce
a good using fewer productive inputs than is possible
anywhere else in the world.
• Since country A’s workers can produce S in less time than
B’s workers, then A has an absolute advantage in
production of S.
Adam Smith’s Principle
• Adam Smith’s principle—countries should
specialize in the production of goods in which they
have an absolute advantage.
• By following Smith’s principle of absolute
advantage, total world output will rise even though
there are no new resources.
Summary of Smith’s Principle
• For various reasons such as different
technologies and climate, countries will
produce different goods.
• World output will increase if countries
specialize in their absolute advantage
products.
• This situation is the natural outcome of
market forces combined with free trade. A
good is cheapest in the country that has
absolute advantage in its production.
Critique of Adam Smith Capitalist
Theory
• Carl Marx – The Conflict Theory
• John Maynard Keynes - The General
Theory
Karl Marx (1818-1883)
15
• Karl Heinrich Marx (May 5th, 1818 – March
14th, 1883) was a German philosopher,
economist, sociologist, historian, journalist,
and revolutionary socialist.
• Ideas played a significant role in the
development of social science and the
socialist political movement
• Studied at the University of Bonn and the
University of Berlin
• Marx progressed to journalism in October
1842 and became editor in Cologne
• Marx met his wife, Jenny Von Westphalen,
at the University of Bonn
• After his studies he moved to Paris with his
wife
• Worked with fellow German revolutionary
socialist, Friedrich Engels, whom he met in
Paris
Background (1)
Marxist Theory from Adam Smith
• social relationships are generated by exchange
• a person can produce more than he requires for his own subsistence
• the power conferred by the ownership of money is the power to buy other
people’s labour
• while supply and demand may cause the value of a good to fluctuate, its true or
natural value is determined by the cost of the labour required to make it.
Marxist Theory
• Wrote Capital during the Industrial Revolution in Britain
• Much of his analysis is directed at explaining the processes which give rise to
capitalist society
• One of the primary concerns with modes of production
• Each mode of production has three aspects.
– A distinctive principle determining property
– A distinctive division of labour
– A distinctive principle of exchange
16
Background (2)
• Marx regarded social systems as inherently unstable, rather than normally
existing in a stable condition.
• He found the driving force of instability in the capacity of human beings to
produce, by their own labor more than they needed to subsist on.
• He found that the way in which a social system controlled people’s access
to the resources they needed was equally fundamental.
• Marx argued that the market created inequalities
• History is marked by the growth of human productive capacity, and the
forms that history produced for each separate society is a function of what
was needed to maximize productive capacity.
• Much of the work of Marx and Engels examined the conflict generated by
the increasing wealth of the capitalists (Bourgeoisie) at the expense of the
working class (proletariat) who only sunk deeper into poverty
• Marx and Engles viewed history as a sequence of evolutionary stages, each
marked by a unique mode of production
17
Background (3)
• the history of Europe seen in terms of the transition from feudalism to
capitalism and eventually to communism
• Under the feudal system, which preceded capitalism, surplus was secured
by the legal power of the feudal lords over the serfs and peasants who
worked in their lands.
• Violence and repression could reinforce legal power if the peasantry
resisted handing over the surplus.
• Under capitalism, the extraction of surplus is managed more subtly
through the mechanism of the wage.
• The wage is only equivalent to some of the value of the worker performed
but the labourer;
• the remaining ‘surplus value’ is taken by the capitalist in the form of
profits.
• Thus, in a capitalist society, the power and wealth of the dominant class is
seen as legitimate, rather than simply backed by coercion as it was in
feudal societies.
18
Background (4)
• What is going on is concealed from the labourers under the idea of a fair
wage for a fair day’s work. – bourgeoise ideology - class have a vested
interest in maintaining their power and will seek to resist such change
• especially through elaboration of mystification in the ideology, which
results in the false consciousness of the lower class
• Marx and Engles viewed social change as an evolutionary process marked
by revolution in which new levels of social, political and economic
development were achieved through class struggle
• A class is defined in terms of the relationship of people's labour to the
means of production
• each mode of production produced characteristic class relationships
involving a dominating and a subordinate class.
• These two classes were linked together in a relationship of exploitation in
which the subordinate class provided the labour and the dominant class
then appropriated the surplus
19
Background (5)
• Capitalism produces a relationship of mutual dependence between
the bourgeoisie and the proletariat (without labourers the capitalist
cannot make a profit), which is also inherently antagonistic: the
interests of the two main classes are opposed.
• Marx and Engels saw a history of class relationships in which those
who work have been polarized in opposition to those who control
the means of production
• Class in itself vs a class for itself
• Marx also maintained that self consciousness is an attribute of class
existence
• Consciousness lead to one's group's collective solidarity, and
common interests in relations of production.
• Marx viewed peasants as ambiguous
20
Background (6)
• Marx believed that various tendencies in capitalism would promote
class conflict.
• The progressive development of technology would bring deskilling of
jobs,
• creating more homogenised and potentially united labour force;
• the relative gap in wealth between the dominant and subordinate
classes would steadily increase;
• processes of capital accumulation and competition would combine
to produce ever more extreme crises of capitalism,
• propelling processes of class conflict towards an ultimate social
revolution.
21
Background (7)
• Marx believed that various tendencies in capitalism would promote
class conflict.
• The progressive development of technology would bring deskilling of
jobs,
• creating more homogenised and potentially united labour force;
• the relative gap in wealth between the dominant and subordinate
classes would steadily increase;
• processes of capital accumulation and competition would combine
to produce ever more extreme crises of capitalism,
• propelling processes of class conflict towards an ultimate social
revolution.
22
Evolutionary Marxism (1)
• Engles states that socioeconomics develops in a series of stages from
primitive communism, slave society, feudalism, capitalism and finally
communism unilineal evolutionism T
• The first stage, primitive communism was an aspect of savagery
– characterized by a public control and ownership of the means of
production
– and an absence of exploitation and social class.
• The next stage, slave society is related to barbarism.
– Property is identified with people, to own people is to have some
control and ownership to the means of production.
– Yet, the notion of private property in relation to land did not exist at
this stage of development
23
Evolutionary Marxism (2)
• The third stage, feudalism can be seen in Medieval Europe
– There is a class distinction made between aristocrats, those
who own land and serfs the subjects of the aristocrats.
– Aristocrats own the land and distribute it among their loyal
serfs. Thus, there is property related to land, and to control and
own this property is related to the control and ownership to the
means of production (i.e. the serfs)
• The capitalist stage is the current stage of society. The final stage
(Communism) is yet to come
• At this stage there are two classes: the bourgeoisie, the ones who
control and own the means to production;
• and the proletariat, those who most sell their labour to the
bourgeoisie.
24
Evolutionary Marxism (3)
• believed that Morgan’s evolutionary stages of human culture with
material achievements and technology validated their evolutionary
theory
• Marx and Engels gave currency to the idea of primitive
communism.
• argued that the real basis of social and political inequality was
property,
• and that since there was no private property in primitive societies,
there was no state and no class or inequality
25
Characteristics of Marxist studies
1. A focus on issues of structures of power and exploitation
2. A concern with conflict and change
3. A starting point in the material system of production and
ownership of property
4. An analysis of action as political power struggles
between social groups defined by their control of
property
5. Various ways in which class, identity, and local struggles
intersect
26
Critique of Marxism (1)
• How important is class and inequality in social life
• in many societies, kinship, religion, and ethnicity seem to
have provided stronger connections than has class
• Has been criticized on its definition of ideology which
puts it forth as a plot created by the ruling class to
mystify the lower class; this is not likely since the rulers
also subscribe to the ideology.
• Further, how the ideology spreads is also unclear, as its
relation to other forms of knowledge
27
Critique of Marxism (2)
• Another problem that Marxism has faced is in the
evaluation of societies that do not possess any classes;
how and why did 'primitive communism' change without
a conflict of classes?
• Marx’s framework cannot deal adequately with other
dimensions of inequality. To conceptualize a society as
mode of production is inevitably to privilege economic
relations over other aspects of inequality. There is more
than simply the class struggle going on in society
• Links of kinship religion, ethnicity and nation, have all
tended to seem more powerful than links of classs.
28
And Now…Work Outside the Lecture
Preparation
For
Padagogic
Style
Preparation
Time Budget
Individual
Task
Group Task Output Week 4 Preparation Activity
Read Chapter 3 to Chapter 4 from Core Text
Book: The Age of the Economist
An outline of the history of economic thought by
SCREPANTI & ZAMAGNI, Section 1 and Section 4
Seminar 4 30 Minutes Read above Material + Seminar material
Workshop 4 1 Hour
Online Collaboration Activities relating Group
Presentation in Week 6
2 HourLecture 4
End of presentation
© Pearson College 2013

More Related Content

What's hot

karl marx historial materialism, alienation, mode of production, class struggles
karl marx historial materialism, alienation, mode of production, class struggleskarl marx historial materialism, alienation, mode of production, class struggles
karl marx historial materialism, alienation, mode of production, class struggles
kingsly sam zebulun
 
Karl Marx
Karl MarxKarl Marx
Karl Marx
samwise
 

What's hot (20)

Marxism and its ideology
Marxism and its ideologyMarxism and its ideology
Marxism and its ideology
 
Max weber- sociologist
Max weber- sociologistMax weber- sociologist
Max weber- sociologist
 
Capitalism
CapitalismCapitalism
Capitalism
 
Gramsci's theory of cultural hegemony
Gramsci's theory of cultural hegemonyGramsci's theory of cultural hegemony
Gramsci's theory of cultural hegemony
 
Capitalism
CapitalismCapitalism
Capitalism
 
Introduction to Marxism
Introduction to MarxismIntroduction to Marxism
Introduction to Marxism
 
Hegel & Marx
Hegel & MarxHegel & Marx
Hegel & Marx
 
POLITICAL IDEOLOGIES - MARXISM
POLITICAL IDEOLOGIES - MARXISMPOLITICAL IDEOLOGIES - MARXISM
POLITICAL IDEOLOGIES - MARXISM
 
The history and evolution of foreign policy analysis
The history and evolution of foreign policy analysisThe history and evolution of foreign policy analysis
The history and evolution of foreign policy analysis
 
karl marx historial materialism, alienation, mode of production, class struggles
karl marx historial materialism, alienation, mode of production, class struggleskarl marx historial materialism, alienation, mode of production, class struggles
karl marx historial materialism, alienation, mode of production, class struggles
 
Karl Marx
Karl MarxKarl Marx
Karl Marx
 
Communism
CommunismCommunism
Communism
 
Communism 1
Communism 1Communism 1
Communism 1
 
John Stuart Mill
John Stuart MillJohn Stuart Mill
John Stuart Mill
 
International Political Economy (Integration)
International Political Economy (Integration)International Political Economy (Integration)
International Political Economy (Integration)
 
A Summary Of Adam Smith - Ideas, Life & Legacy
A Summary Of Adam Smith - Ideas, Life & LegacyA Summary Of Adam Smith - Ideas, Life & Legacy
A Summary Of Adam Smith - Ideas, Life & Legacy
 
Post-modernism in International Relation
Post-modernism in International RelationPost-modernism in International Relation
Post-modernism in International Relation
 
Marxism presentation
Marxism presentationMarxism presentation
Marxism presentation
 
Capitalism
CapitalismCapitalism
Capitalism
 
End of cold war
End  of cold warEnd  of cold war
End of cold war
 

Viewers also liked

Adam smith theory on International Trade
Adam smith theory on International TradeAdam smith theory on International Trade
Adam smith theory on International Trade
Abhishek Badola
 
2008vus13d sovietcollapse
2008vus13d sovietcollapse2008vus13d sovietcollapse
2008vus13d sovietcollapse
k0socha
 
Philosophy 100: Roots of Wisdom: Chapter 1
Philosophy 100: Roots of Wisdom: Chapter 1Philosophy 100: Roots of Wisdom: Chapter 1
Philosophy 100: Roots of Wisdom: Chapter 1
dborcoman
 
International Theories
International TheoriesInternational Theories
International Theories
fathima habeeb
 
Theory of Value. Adam Smith.
Theory of Value. Adam Smith.Theory of Value. Adam Smith.
Theory of Value. Adam Smith.
Sarkis Sarkisyan
 
Adam smith and modern economics
Adam smith and modern economicsAdam smith and modern economics
Adam smith and modern economics
Glenn Rivera
 

Viewers also liked (20)

Adam smith theory on International Trade
Adam smith theory on International TradeAdam smith theory on International Trade
Adam smith theory on International Trade
 
Environmental economics in health
Environmental economics in healthEnvironmental economics in health
Environmental economics in health
 
2008vus13d sovietcollapse
2008vus13d sovietcollapse2008vus13d sovietcollapse
2008vus13d sovietcollapse
 
Democracy
DemocracyDemocracy
Democracy
 
Philosophy 100: Roots of Wisdom: Chapter 1
Philosophy 100: Roots of Wisdom: Chapter 1Philosophy 100: Roots of Wisdom: Chapter 1
Philosophy 100: Roots of Wisdom: Chapter 1
 
Adam smith pathfinder(final)
Adam smith pathfinder(final)Adam smith pathfinder(final)
Adam smith pathfinder(final)
 
Philosophy 100: Chapter 8 PowerPoint: Roots
Philosophy 100: Chapter 8 PowerPoint: RootsPhilosophy 100: Chapter 8 PowerPoint: Roots
Philosophy 100: Chapter 8 PowerPoint: Roots
 
Adam Smith Economics
Adam Smith EconomicsAdam Smith Economics
Adam Smith Economics
 
The collapse-of-the-soviet-union
The collapse-of-the-soviet-unionThe collapse-of-the-soviet-union
The collapse-of-the-soviet-union
 
427 lecture marxism (small)
427 lecture marxism (small)427 lecture marxism (small)
427 lecture marxism (small)
 
International Theories
International TheoriesInternational Theories
International Theories
 
Chapter one of History of Economy Theory
Chapter one of History of Economy Theory Chapter one of History of Economy Theory
Chapter one of History of Economy Theory
 
Theory of Value. Adam Smith.
Theory of Value. Adam Smith.Theory of Value. Adam Smith.
Theory of Value. Adam Smith.
 
Government: Less or More (Lessons from the History of Economic Thought)
Government: Less or More (Lessons from the History of Economic Thought)Government: Less or More (Lessons from the History of Economic Thought)
Government: Less or More (Lessons from the History of Economic Thought)
 
Market and economic efficiency
Market and economic efficiencyMarket and economic efficiency
Market and economic efficiency
 
Adam smith and modern economics
Adam smith and modern economicsAdam smith and modern economics
Adam smith and modern economics
 
Economic Thought Through the Ages, Lecture 1 with David Gordon - Mises Academy
Economic Thought Through the Ages, Lecture 1 with David Gordon - Mises AcademyEconomic Thought Through the Ages, Lecture 1 with David Gordon - Mises Academy
Economic Thought Through the Ages, Lecture 1 with David Gordon - Mises Academy
 
3.2.1 welfare economics
3.2.1 welfare economics3.2.1 welfare economics
3.2.1 welfare economics
 
Marxism presentation
Marxism presentationMarxism presentation
Marxism presentation
 
Marxism & Hegemony
Marxism & HegemonyMarxism & Hegemony
Marxism & Hegemony
 

Similar to Lecture 4 Evolution of Global Economies Capitalism, Adam Smith & Marxism

Business ethics chapter_3[1] - copy
Business ethics chapter_3[1] - copyBusiness ethics chapter_3[1] - copy
Business ethics chapter_3[1] - copy
SILK BANK
 
Social & economic reformers (1)
Social & economic reformers (1)Social & economic reformers (1)
Social & economic reformers (1)
Diane Isaac
 
Multi-Centric Organizational Model Presentation By Bilal Yousaf
Multi-Centric Organizational Model Presentation By Bilal YousafMulti-Centric Organizational Model Presentation By Bilal Yousaf
Multi-Centric Organizational Model Presentation By Bilal Yousaf
Bilal yousaf
 
Philosophical Indus
Philosophical IndusPhilosophical Indus
Philosophical Indus
dansutton
 
Socialism
SocialismSocialism
Socialism
jtoma84
 

Similar to Lecture 4 Evolution of Global Economies Capitalism, Adam Smith & Marxism (20)

MARXISM.pptx
MARXISM.pptxMARXISM.pptx
MARXISM.pptx
 
Business ethics chapter_3[1] - copy
Business ethics chapter_3[1] - copyBusiness ethics chapter_3[1] - copy
Business ethics chapter_3[1] - copy
 
Capitalism vs Communism
Capitalism vs CommunismCapitalism vs Communism
Capitalism vs Communism
 
Lecture no. 6 marxism
Lecture no. 6 marxismLecture no. 6 marxism
Lecture no. 6 marxism
 
M xs
M xsM xs
M xs
 
Social & economic reformers (1)
Social & economic reformers (1)Social & economic reformers (1)
Social & economic reformers (1)
 
Marxism & Business
Marxism & BusinessMarxism & Business
Marxism & Business
 
Classical and Neo Classical Economics
Classical and Neo Classical EconomicsClassical and Neo Classical Economics
Classical and Neo Classical Economics
 
Multi-Centric Organizational Model Presentation By Bilal Yousaf
Multi-Centric Organizational Model Presentation By Bilal YousafMulti-Centric Organizational Model Presentation By Bilal Yousaf
Multi-Centric Organizational Model Presentation By Bilal Yousaf
 
Marx and justice
Marx and justiceMarx and justice
Marx and justice
 
group-3 -pptx.pptx
group-3 -pptx.pptxgroup-3 -pptx.pptx
group-3 -pptx.pptx
 
Socialism
SocialismSocialism
Socialism
 
Industrial revolution.pptx
Industrial revolution.pptxIndustrial revolution.pptx
Industrial revolution.pptx
 
marxism.pptx
marxism.pptxmarxism.pptx
marxism.pptx
 
Communism vs captalism
Communism vs captalismCommunism vs captalism
Communism vs captalism
 
Philosophical Indus
Philosophical IndusPhilosophical Indus
Philosophical Indus
 
The business system government, markets, and international trade
The business system government, markets, and international tradeThe business system government, markets, and international trade
The business system government, markets, and international trade
 
Capitalism and the Industrial revolution
Capitalism and the Industrial revolutionCapitalism and the Industrial revolution
Capitalism and the Industrial revolution
 
9.4 reforming the industrial world
9.4 reforming the industrial world9.4 reforming the industrial world
9.4 reforming the industrial world
 
Socialism
SocialismSocialism
Socialism
 

More from Pearson College London

More from Pearson College London (20)

B416 The Evolution of Global Economies Seminar 8
B416 The Evolution of Global Economies Seminar 8B416 The Evolution of Global Economies Seminar 8
B416 The Evolution of Global Economies Seminar 8
 
B416 The Evolution of Global Economies Seminar 7
B416 The Evolution of Global Economies Seminar 7B416 The Evolution of Global Economies Seminar 7
B416 The Evolution of Global Economies Seminar 7
 
B416 The Evolution Of Global Economies Lecture 10 Recent Global Economic Cris...
B416 The Evolution Of Global Economies Lecture 10 Recent Global Economic Cris...B416 The Evolution Of Global Economies Lecture 10 Recent Global Economic Cris...
B416 The Evolution Of Global Economies Lecture 10 Recent Global Economic Cris...
 
B416 The Evolution Of Global Economies Lecture 9 Recent Global Economic Crisi...
B416 The Evolution Of Global Economies Lecture 9 Recent Global Economic Crisi...B416 The Evolution Of Global Economies Lecture 9 Recent Global Economic Crisi...
B416 The Evolution Of Global Economies Lecture 9 Recent Global Economic Crisi...
 
B416 The Evolution Of Global Economies Lecture 8 Political & Economical Envir...
B416 The Evolution Of Global Economies Lecture 8 Political & Economical Envir...B416 The Evolution Of Global Economies Lecture 8 Political & Economical Envir...
B416 The Evolution Of Global Economies Lecture 8 Political & Economical Envir...
 
B416 The Evolution Of Global Economies Lecture 7 Governmental Influence on Trade
B416 The Evolution Of Global Economies Lecture 7 Governmental Influence on TradeB416 The Evolution Of Global Economies Lecture 7 Governmental Influence on Trade
B416 The Evolution Of Global Economies Lecture 7 Governmental Influence on Trade
 
B416 The Evolution Of Global Economies Lecture 6 International Trade Organisa...
B416 The Evolution Of Global Economies Lecture 6 International Trade Organisa...B416 The Evolution Of Global Economies Lecture 6 International Trade Organisa...
B416 The Evolution Of Global Economies Lecture 6 International Trade Organisa...
 
POB Week 2 Finance Seminar 8
POB Week 2 Finance Seminar 8POB Week 2 Finance Seminar 8
POB Week 2 Finance Seminar 8
 
POB Week 2 Finance Seminar 7
POB Week 2 Finance Seminar 7POB Week 2 Finance Seminar 7
POB Week 2 Finance Seminar 7
 
POB Week 2 Finance Seminar 6
POB Week 2 Finance Seminar 6POB Week 2 Finance Seminar 6
POB Week 2 Finance Seminar 6
 
POB Finance Week 2 Seminar 5
POB Finance Week 2 Seminar 5POB Finance Week 2 Seminar 5
POB Finance Week 2 Seminar 5
 
B415 Finance lecture 4
B415 Finance lecture 4B415 Finance lecture 4
B415 Finance lecture 4
 
B415 Finance Lecture 3
B415 Finance Lecture 3B415 Finance Lecture 3
B415 Finance Lecture 3
 
B412 Week 4 workshop
B412 Week 4 workshopB412 Week 4 workshop
B412 Week 4 workshop
 
B412 Week 5 Lecture - Economy
B412 Week 5 Lecture - EconomyB412 Week 5 Lecture - Economy
B412 Week 5 Lecture - Economy
 
B416 evolution of global economies lecture 1
B416 evolution of global economies lecture 1B416 evolution of global economies lecture 1
B416 evolution of global economies lecture 1
 
B416 Evolution of Global Economies Lecture 2
B416 Evolution of Global Economies Lecture 2B416 Evolution of Global Economies Lecture 2
B416 Evolution of Global Economies Lecture 2
 
B412 week 4 seminar - China's government
B412 week 4 seminar - China's governmentB412 week 4 seminar - China's government
B412 week 4 seminar - China's government
 
Lecture 5 Evolution of Global Economies Heckscher Ohlin & Others
Lecture 5 Evolution of Global Economies Heckscher Ohlin & OthersLecture 5 Evolution of Global Economies Heckscher Ohlin & Others
Lecture 5 Evolution of Global Economies Heckscher Ohlin & Others
 
Lecture 3 Evolution of Global Economies Bullionism & Mercantilism part 2
Lecture 3 Evolution of Global Economies Bullionism & Mercantilism part 2Lecture 3 Evolution of Global Economies Bullionism & Mercantilism part 2
Lecture 3 Evolution of Global Economies Bullionism & Mercantilism part 2
 

Recently uploaded

Activity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdfActivity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdf
ciinovamais
 
Spellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please PractiseSpellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please Practise
AnaAcapella
 
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in DelhiRussian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
kauryashika82
 
1029 - Danh muc Sach Giao Khoa 10 . pdf
1029 -  Danh muc Sach Giao Khoa 10 . pdf1029 -  Danh muc Sach Giao Khoa 10 . pdf
1029 - Danh muc Sach Giao Khoa 10 . pdf
QucHHunhnh
 
The basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxThe basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptx
heathfieldcps1
 

Recently uploaded (20)

Holdier Curriculum Vitae (April 2024).pdf
Holdier Curriculum Vitae (April 2024).pdfHoldier Curriculum Vitae (April 2024).pdf
Holdier Curriculum Vitae (April 2024).pdf
 
This PowerPoint helps students to consider the concept of infinity.
This PowerPoint helps students to consider the concept of infinity.This PowerPoint helps students to consider the concept of infinity.
This PowerPoint helps students to consider the concept of infinity.
 
Explore beautiful and ugly buildings. Mathematics helps us create beautiful d...
Explore beautiful and ugly buildings. Mathematics helps us create beautiful d...Explore beautiful and ugly buildings. Mathematics helps us create beautiful d...
Explore beautiful and ugly buildings. Mathematics helps us create beautiful d...
 
Activity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdfActivity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdf
 
microwave assisted reaction. General introduction
microwave assisted reaction. General introductionmicrowave assisted reaction. General introduction
microwave assisted reaction. General introduction
 
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
 
How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17
 
Dyslexia AI Workshop for Slideshare.pptx
Dyslexia AI Workshop for Slideshare.pptxDyslexia AI Workshop for Slideshare.pptx
Dyslexia AI Workshop for Slideshare.pptx
 
Spellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please PractiseSpellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please Practise
 
Third Battle of Panipat detailed notes.pptx
Third Battle of Panipat detailed notes.pptxThird Battle of Panipat detailed notes.pptx
Third Battle of Panipat detailed notes.pptx
 
Application orientated numerical on hev.ppt
Application orientated numerical on hev.pptApplication orientated numerical on hev.ppt
Application orientated numerical on hev.ppt
 
ComPTIA Overview | Comptia Security+ Book SY0-701
ComPTIA Overview | Comptia Security+ Book SY0-701ComPTIA Overview | Comptia Security+ Book SY0-701
ComPTIA Overview | Comptia Security+ Book SY0-701
 
Accessible Digital Futures project (20/03/2024)
Accessible Digital Futures project (20/03/2024)Accessible Digital Futures project (20/03/2024)
Accessible Digital Futures project (20/03/2024)
 
Unit-IV; Professional Sales Representative (PSR).pptx
Unit-IV; Professional Sales Representative (PSR).pptxUnit-IV; Professional Sales Representative (PSR).pptx
Unit-IV; Professional Sales Representative (PSR).pptx
 
Key note speaker Neum_Admir Softic_ENG.pdf
Key note speaker Neum_Admir Softic_ENG.pdfKey note speaker Neum_Admir Softic_ENG.pdf
Key note speaker Neum_Admir Softic_ENG.pdf
 
Kodo Millet PPT made by Ghanshyam bairwa college of Agriculture kumher bhara...
Kodo Millet  PPT made by Ghanshyam bairwa college of Agriculture kumher bhara...Kodo Millet  PPT made by Ghanshyam bairwa college of Agriculture kumher bhara...
Kodo Millet PPT made by Ghanshyam bairwa college of Agriculture kumher bhara...
 
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in DelhiRussian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
 
1029 - Danh muc Sach Giao Khoa 10 . pdf
1029 -  Danh muc Sach Giao Khoa 10 . pdf1029 -  Danh muc Sach Giao Khoa 10 . pdf
1029 - Danh muc Sach Giao Khoa 10 . pdf
 
Making communications land - Are they received and understood as intended? we...
Making communications land - Are they received and understood as intended? we...Making communications land - Are they received and understood as intended? we...
Making communications land - Are they received and understood as intended? we...
 
The basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxThe basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptx
 

Lecture 4 Evolution of Global Economies Capitalism, Adam Smith & Marxism

  • 1. B416: The Evolution of Global Economies Lecture 4 : Capitalism, Adam Smith & Marxism
  • 2. Learning Outcomes – Adam Smith Adam Smith - Criticism of Mercantilism – Absolute Advantage, Basic Principles & Assumptions of Capitalist Model – Evaluation & Critique of the Classical Model Carl Marx - Background – Evolution – Characteristics – Critique
  • 3. Page 3 Adam Smith (1723 – 1790) Scottish philosopher, considered by many to be the founder of modern economic science as we know it. Famous for the ‘invisible hand’, that is how people pursuing their own self-interest actually benefit the society as a whole, and the advantages of increasing ‘specialisation’. Major publications are ‘The Theory of Moral Sentiments’ (1759) and ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ (1776).
  • 4. Page 4 The Wealth of Nations (1776)
  • 5. Adam Smith’s Criticism of Mercantilism • He was making a political argument, NOT an economic one. – Part of the argument was for new economic policy, but. – An essential part of the argument was for new social and political arrangements. • He argued that the basic unit for social analysis should be the nation, not the state. • He was against the belief that trade was a zero-sum game – It was a positive-sum game. – Both nations gained. • Argued that mercantilism lowered a country’s standard of living. • Advocated free international trade. • Emphasized advantages of specialization and international division of labor whereby nations specialize in the production of only a few goods.
  • 6. Adam Smith’s Basic Capitalist Principles 1 1. Goods and services are produced for profitable exchange. 2. Division of Labour is key. 3. Laour is the basis of wealth. 4. The division of Labour implies economic interdependence 5. Human labor power is a commodity for sale  LABOR IS THE SOURCE OF VALUE Businesses Households Goods & Service Labor & Investments Consumer Spending Wages
  • 7. Adam Smith’s Basic Capitalist Principles 2 6. The “Invisible Hand” of the market • Problem  How do we survive in a world where we must depend on many others, but where humans are by nature self-interested individuals?? • Solution  the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called “invisible hand.” • Therefore, the basic market mechanism is self-regulating!
  • 8. Adam Smith’s Basic Capitalist Principles 3 7. Individuals seeking success are driven by self-interest  Profit Motive 8. The Law of Supply and Demand • Individuals who are free to pursue their self-interest will produce goods and services that others want, at prices others will be willing to pay.
  • 9. Adam Smith’s Basic Capitalist Principles 4 9. Law of Competition The competitive market system compels producers to be increasingly efficient, and to respond to the desires of consumers. 10. A social division of labor will maximize the satisfaction of individual wants and needs, given scarce resources. 11. Government should interfere minimally with the free and efficient workings of the market – Laissez faire [“Leave things alone.”]
  • 10. Adam Smith’s Classical Capitalist Model Assumptions • Resources cannot move between countries. • There are no trade barriers. • Exports must pay for imports, i.e., trade must be balanced. • Markets are self-regulating systems for the orderly coordination of the division of labour. • Labor is the only relevant resource. – Labor Theory of Value states that the pre-trade price of a good is determined by the amount of labor it took to produce it. • Constant returns to scale between labor and output prevails. – Constant returns implies a fixed ratio between the labor used and the output level produced.
  • 11. Absolute Advantage • Absolute advantage is the ability of a country to produce a good using fewer productive inputs than is possible anywhere else in the world. • Since country A’s workers can produce S in less time than B’s workers, then A has an absolute advantage in production of S.
  • 12. Adam Smith’s Principle • Adam Smith’s principle—countries should specialize in the production of goods in which they have an absolute advantage. • By following Smith’s principle of absolute advantage, total world output will rise even though there are no new resources.
  • 13. Summary of Smith’s Principle • For various reasons such as different technologies and climate, countries will produce different goods. • World output will increase if countries specialize in their absolute advantage products. • This situation is the natural outcome of market forces combined with free trade. A good is cheapest in the country that has absolute advantage in its production.
  • 14. Critique of Adam Smith Capitalist Theory • Carl Marx – The Conflict Theory • John Maynard Keynes - The General Theory
  • 15. Karl Marx (1818-1883) 15 • Karl Heinrich Marx (May 5th, 1818 – March 14th, 1883) was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. • Ideas played a significant role in the development of social science and the socialist political movement • Studied at the University of Bonn and the University of Berlin • Marx progressed to journalism in October 1842 and became editor in Cologne • Marx met his wife, Jenny Von Westphalen, at the University of Bonn • After his studies he moved to Paris with his wife • Worked with fellow German revolutionary socialist, Friedrich Engels, whom he met in Paris
  • 16. Background (1) Marxist Theory from Adam Smith • social relationships are generated by exchange • a person can produce more than he requires for his own subsistence • the power conferred by the ownership of money is the power to buy other people’s labour • while supply and demand may cause the value of a good to fluctuate, its true or natural value is determined by the cost of the labour required to make it. Marxist Theory • Wrote Capital during the Industrial Revolution in Britain • Much of his analysis is directed at explaining the processes which give rise to capitalist society • One of the primary concerns with modes of production • Each mode of production has three aspects. – A distinctive principle determining property – A distinctive division of labour – A distinctive principle of exchange 16
  • 17. Background (2) • Marx regarded social systems as inherently unstable, rather than normally existing in a stable condition. • He found the driving force of instability in the capacity of human beings to produce, by their own labor more than they needed to subsist on. • He found that the way in which a social system controlled people’s access to the resources they needed was equally fundamental. • Marx argued that the market created inequalities • History is marked by the growth of human productive capacity, and the forms that history produced for each separate society is a function of what was needed to maximize productive capacity. • Much of the work of Marx and Engels examined the conflict generated by the increasing wealth of the capitalists (Bourgeoisie) at the expense of the working class (proletariat) who only sunk deeper into poverty • Marx and Engles viewed history as a sequence of evolutionary stages, each marked by a unique mode of production 17
  • 18. Background (3) • the history of Europe seen in terms of the transition from feudalism to capitalism and eventually to communism • Under the feudal system, which preceded capitalism, surplus was secured by the legal power of the feudal lords over the serfs and peasants who worked in their lands. • Violence and repression could reinforce legal power if the peasantry resisted handing over the surplus. • Under capitalism, the extraction of surplus is managed more subtly through the mechanism of the wage. • The wage is only equivalent to some of the value of the worker performed but the labourer; • the remaining ‘surplus value’ is taken by the capitalist in the form of profits. • Thus, in a capitalist society, the power and wealth of the dominant class is seen as legitimate, rather than simply backed by coercion as it was in feudal societies. 18
  • 19. Background (4) • What is going on is concealed from the labourers under the idea of a fair wage for a fair day’s work. – bourgeoise ideology - class have a vested interest in maintaining their power and will seek to resist such change • especially through elaboration of mystification in the ideology, which results in the false consciousness of the lower class • Marx and Engles viewed social change as an evolutionary process marked by revolution in which new levels of social, political and economic development were achieved through class struggle • A class is defined in terms of the relationship of people's labour to the means of production • each mode of production produced characteristic class relationships involving a dominating and a subordinate class. • These two classes were linked together in a relationship of exploitation in which the subordinate class provided the labour and the dominant class then appropriated the surplus 19
  • 20. Background (5) • Capitalism produces a relationship of mutual dependence between the bourgeoisie and the proletariat (without labourers the capitalist cannot make a profit), which is also inherently antagonistic: the interests of the two main classes are opposed. • Marx and Engels saw a history of class relationships in which those who work have been polarized in opposition to those who control the means of production • Class in itself vs a class for itself • Marx also maintained that self consciousness is an attribute of class existence • Consciousness lead to one's group's collective solidarity, and common interests in relations of production. • Marx viewed peasants as ambiguous 20
  • 21. Background (6) • Marx believed that various tendencies in capitalism would promote class conflict. • The progressive development of technology would bring deskilling of jobs, • creating more homogenised and potentially united labour force; • the relative gap in wealth between the dominant and subordinate classes would steadily increase; • processes of capital accumulation and competition would combine to produce ever more extreme crises of capitalism, • propelling processes of class conflict towards an ultimate social revolution. 21
  • 22. Background (7) • Marx believed that various tendencies in capitalism would promote class conflict. • The progressive development of technology would bring deskilling of jobs, • creating more homogenised and potentially united labour force; • the relative gap in wealth between the dominant and subordinate classes would steadily increase; • processes of capital accumulation and competition would combine to produce ever more extreme crises of capitalism, • propelling processes of class conflict towards an ultimate social revolution. 22
  • 23. Evolutionary Marxism (1) • Engles states that socioeconomics develops in a series of stages from primitive communism, slave society, feudalism, capitalism and finally communism unilineal evolutionism T • The first stage, primitive communism was an aspect of savagery – characterized by a public control and ownership of the means of production – and an absence of exploitation and social class. • The next stage, slave society is related to barbarism. – Property is identified with people, to own people is to have some control and ownership to the means of production. – Yet, the notion of private property in relation to land did not exist at this stage of development 23
  • 24. Evolutionary Marxism (2) • The third stage, feudalism can be seen in Medieval Europe – There is a class distinction made between aristocrats, those who own land and serfs the subjects of the aristocrats. – Aristocrats own the land and distribute it among their loyal serfs. Thus, there is property related to land, and to control and own this property is related to the control and ownership to the means of production (i.e. the serfs) • The capitalist stage is the current stage of society. The final stage (Communism) is yet to come • At this stage there are two classes: the bourgeoisie, the ones who control and own the means to production; • and the proletariat, those who most sell their labour to the bourgeoisie. 24
  • 25. Evolutionary Marxism (3) • believed that Morgan’s evolutionary stages of human culture with material achievements and technology validated their evolutionary theory • Marx and Engels gave currency to the idea of primitive communism. • argued that the real basis of social and political inequality was property, • and that since there was no private property in primitive societies, there was no state and no class or inequality 25
  • 26. Characteristics of Marxist studies 1. A focus on issues of structures of power and exploitation 2. A concern with conflict and change 3. A starting point in the material system of production and ownership of property 4. An analysis of action as political power struggles between social groups defined by their control of property 5. Various ways in which class, identity, and local struggles intersect 26
  • 27. Critique of Marxism (1) • How important is class and inequality in social life • in many societies, kinship, religion, and ethnicity seem to have provided stronger connections than has class • Has been criticized on its definition of ideology which puts it forth as a plot created by the ruling class to mystify the lower class; this is not likely since the rulers also subscribe to the ideology. • Further, how the ideology spreads is also unclear, as its relation to other forms of knowledge 27
  • 28. Critique of Marxism (2) • Another problem that Marxism has faced is in the evaluation of societies that do not possess any classes; how and why did 'primitive communism' change without a conflict of classes? • Marx’s framework cannot deal adequately with other dimensions of inequality. To conceptualize a society as mode of production is inevitably to privilege economic relations over other aspects of inequality. There is more than simply the class struggle going on in society • Links of kinship religion, ethnicity and nation, have all tended to seem more powerful than links of classs. 28
  • 29. And Now…Work Outside the Lecture Preparation For Padagogic Style Preparation Time Budget Individual Task Group Task Output Week 4 Preparation Activity Read Chapter 3 to Chapter 4 from Core Text Book: The Age of the Economist An outline of the history of economic thought by SCREPANTI & ZAMAGNI, Section 1 and Section 4 Seminar 4 30 Minutes Read above Material + Seminar material Workshop 4 1 Hour Online Collaboration Activities relating Group Presentation in Week 6 2 HourLecture 4
  • 30. End of presentation © Pearson College 2013