Economics

The first economist was Adam Smith who wrote the publication “The Wealth of Nations” which raised the question; why is one country richer than another? Smith argued that wealthy countries are categorised by free people and free trade. Countries that have too much government intervention are poorer. He believed that money has no actual value in itself, it just keeps score on how much value has been created. Before “The Wealth of Nations” Smith published a book focusing on philosophy which contained theories similar to that of Kant. Smith had the view that everyone is out for themselves, people are not altruistic. There is no point trying to live out your life helping others, it is damaging, all you achieve is an ego boost. Smith believed there was a “hidden hand of the market”.

David Ricardo – Took the opposite view to Smith, amore metaphysical view. He believed there is a spirit of value in things. Value only arises when humans apply labour towards it, the more labour involved the higher its value. For example diamonds are more valuable than matchsticks as there is more human effort and labour put towards getting a diamond than there is making a matchstick. Water has more value in some places than others as it is harder to gain access to.

Thomas Malthus – Stated there was an “iron law of population”; humans will always starve to death. The natural condition of men  is to constantly be on the brink of extinction. If the food system broke down in the UK people would be suffering starvation within days. Marriage and chastity is the way to prevent starvation. Malthus’s theories are coming back into fashion with peoples growing concerns about climate change.

Karl Marx – An epistemologist and economist and his theories on economy are similar to that of Ricardo and Malthus. Labour is the only source of value, the pay for labour will decrease as the population increases. The people who grow the food, at the end of the day, will not be able to afford to buy it. For example, “widget” costs £10, the person who owns the factory takes £5 as profit and the employees take £5 as wage. The employees then go to the shop to buy a widget, but they cost £10 and they only have £5 to spend. This is the iron law of wages. In a system of profit they will always look to reduce the wage, this is known as the crisis of capitalism. It can result in overproduction and under-consumption.
1844 - The Bank of England created currency. The amount of money the country had depended on the amount of gold.
1848 - The year of revolutions.
1849 - Gold rush- they discovered gold in California and Australia.

JM Keynes – The 2^nd Wold War brought an end to the depression and the superstition about gold. They went off the gold standard and onto paper money. Every economist at the time were Keynesians. Keynes solved Marx’s “widget” problem, his solution was to simply print more money. If you print more money then companies have more money to invest in their business and can employ more people at a higher wage.
Problems of the Keynesian system:
- Inflation and “stagflation” so unemployment would return.
- Increased role of the state so there is a decline of freedom.
- Destruction of profitability.
- Orientation towards arms spending and militarism.
- Collapse of rational expectations, creates and entitlement culture.
- Failure to innovate