Classical Economics 6.

Karl Marx
 Refers to the economic theories and ideas that were developed by  His most influential work, “Das Kapital” (1867), analyzed the
economists in the 18th and 19th centuries. capitalist system and focused on issues of labor, exploitation, and
 It advocates the development of a free economy with minimal class struggle.
government intervention to trigger economic growth. The concept is
more inclined towards capitalism. Theories
Free Market
Authors  Classical economists believed in the power of free markets to allocate
1. Adam Smith resources efficiently.
 the Father of Classical Economics  They argued that when individuals are left to pursue their self-interest in
 wrote “The Wealth of Nations” (1776), which laid the foundation for a competitive environment, the market mechanism would guide the
modern economic thought. economy towards equilibrium.
 He emphasized the importance of free markets, division of labor,
and self-interest in promoting economic growth. Invisible Hand
 Adam Smith, one of the leading classical economists, introduced the
2. David Ricardo concept of the “invisible hand”.
 Expanded on Smith’s ideas and developed the theory of  He argued that individuals pursuing their self-interest in markets would
comparative advantage. unintentionally promote the general welfare of society as if guided by an
 Work focused on international trade, labor theory of value, and the invisible hand.
concept of rent.
Labor Theory of Value
3. Thomas Malthus  Classical economist, such as Adam Smith and David Ricardo,
 Known for his work on population theory. emphasized the role of labor in determining the value of goods and
 In “An Essay on the Principle of Population” (1798), he argued services.
that population growth tends to outstrip the available resources,  They believed that the amount of labor required to produced a good or
leading to poverty and scarcity. services determined its value.

4. John Stuart Mill Division of Labor

 Extended classical economics and sought to reconcile it with  Classical economist recognized the benefits of specialization and
utilitarianism. division of labor.
 His notable works include “Principle of Political Economy” (1848)  They argued that when workers specialize in specific tasks, overall
and “On Liberty” (1859) productivity and output increase.

5. Jean Baptiste Say Say’s Law

 Known for developing Say’s Law, which states that supply creates
its own demand.
 Emphasized the role of production and believed that markets would
naturally clear themselves.
 Jean Baptiste Say put forth Say’s Law, which states that supply creates
its own demand.
 According to this principle, the act of producing goods and services
generates income and purchasing power, which, in turn, creates demand
for other goods and services.
Laissez Faire
 Classical economists advocated for minimal government intervention in
the economy.
 They believed that markets were self-regulating and government
interference, such as tariffs or regulations, could hinder economic
growth.
Neoclassical Economics
 Believes that markets will naturally restore themselves.
 Prices and therefore wages, will adjust on their own in response to
changes in consumer demand.
 During the last half of the 19th century, economics changed from being
“political economy” - the part of Enlightenment moral philosophy
critically involved wth social issues - to being “economic science” - part
of the scientific revolution of the 19th century.
 The marginalist movement in economics began in earnest when three
theorist - W.S. Jevons (1835 - 1882), Carl Menger (1840-1921), and
Leon Walras (1837-1910) - dependently and almost simultaneously
developed the idea of “marginal utility”.
Marginal Utility
 Describe the change in pleasure or satisfaction resulting from an
increase or decrease in consumption of one unit of a good or service.
 Can be positive, negative, or zero.
Author
1. W.S. Jevons
 A central British theorist of the new economics
 For Jevons, market prices were drived from a series of fundamental
motive forces, such as “the mechanics of utility and self interest”
 Jevons thought that labor, once spent had no influence on the future
value of any commodity. Instead, “value depends entirely on
utility”.
 Jevon’s “Notice of a General Mathematical Theory of Political
Economy”, read in Cambridge before the 1862 meeting of the British
Association for the Advancement of Science, is regarded as the
beginning of the mathematical method in economics as a science
concerned with quantities (utilities) is necessarily mathematical.
2. Carl Menger (1840-1921)
 He is a co-founder of marginalism and of the theory of utility, and
was also founder of the Austrian School.
 He believed that the individual is the ultimate unit of analysis
because only at the individual level can meaning be assigned to
actions.
 Menger used this “subjective theory” of value to arrive at a powerful
conclusion in economics, namely, that both sides again from
exchange.
3. Leon Walras (1834-1910)
 A French economist, is considered, along with W.S. Jevons and Carl
Menger, a co-founder of marginalism and theory of utility.
Keynesian Economics
 Keynesian economics is a school of thought that argues that
government intervention is necessary to stabilize the economy and
promote economic growth.
 Keynesian economists believe that the government can use fiscal
policy, such as deficit spending, and monetary policy, such as interest
rate changes, to stimulate the economy during recessions and to prevent
inflation during booms.
Author
1. John Maynard Keynes
 Was a British economist who is considered one of the most
influential economists of the 20th century.
 Founder of Keynesian economics.
Neoliberalism Economics
 Is a policy model that encompasses both politics and economics.
 It favors private enterprise and seeks to transfer the control of factors
from the government to the private sector.
Characteristics of Neoliberalism
 Free enterprise, competition, deregulation, and the importance of
individual responsibility.
 Opposition to the expansion of government power, state welfare, inflation
 Minimizing government control of industry and boosting private sector
ownership of business and property.
 Free market capitalism and the efficient allocation or resources.
 Globalization rather than heavily regulated markets and protectionism.
 A reduction in government spending and lower taxes.
 Less government control over economic activity to enhance the efficient
functioning of the economy.
 An increase in the impact by the private sector on the economy.
 A reduction in union power and greater flexibility in employment.
 Government intervention when its needed to help implement, sustain,
and protect free market activities.
Author
1. Adam Smith
 Adam Smith’s economic theory is the idea that markets tent to work
best when the government leaves them alone.
 Smith argues that rational people (aka acting in their own interest)
would naturally find best way to use the nation’s resources.
 He viewed government regulation as potentially detrimental to
economic growth.
 Smith believes that the market could be justified only in light of
individual virtue and he was anxious that a society governor by
nothing but transactional self interest was no society at all.
 Adam Smith “invisible hand” had already given his modern
conception of the market: as an autonomous sphere of human
activity.
2. Friedrich Hayek
 Hyek is considered the grandfather of neoliberalism - a sty;e of
thought that reduces everything to economics.
 He thought he was solving the problem of modernity: the problem of
objective knowledge.
 For Hayek, the market didn’t just facilitate trade in goods and
services; it revealed truth.
 When the idea occurred to Friedrich Hayek in 1936, he knew with the
conviction of a “sudden illumination”, that he had struck upon
something new.
 This was a way of birthing a new world. To his mounting excitement,
Hayek understood that the market could be thought of as a kind of
mind.
3. Milton Friedman
 Friedman, an American economist, is often cited as an influential
neoliberal thinker owing to the publication of his landmark 1951
essay, Neo-liberalism and Its Prospects.
 Friedman emphasis the importance of individual as an economic
actor and opposes any state intervention in the economy.
 Such an approach can be described as “market liberalisation” and
reduces state intervention in the on a range of issues such as public
spending on social and welfare, establishing a stable monetary
framework, and preventing monopolies.
4. George Stigler
 Article “The Theory of Economic Regulation” is one of the most
influential political economy accounts of regulation.
 More than perhaps any other article, it shifted the prevailing
explanation for regulation from a public interest model to a rational
choice model. That it shifted regulatory scholars, thinking from a
model that once viewed regulation as emerging almost naturally from
the mere existence of market failures to a model that instead sees
regulation as a response to influence by businesses seeking to erect
barriers against potential competitors.
5. Ludwig von Mises
 Wrote “The Theory of Money and Credit” in 1921.
 He argued that governement intervention in the economy could
never reproduce the results of a free market society.
 Ludwig von Mises Institute is devoted to the study of praxeology, the
study of human behavior as related to economics.
Naturalism Economy
 Presupposes social institution and human behavior to be found on
natural bases - for example, people act on the basis of instinct (human
are naturally selfish), and institutions (like the production system) are
social forms of natural functions (like working in order to eat).
Positive Philosophy
 Auguste Comte (1798-1857)
 He thought that scientific understanding progressed through the
theological and metaphysical stages to reach the pinnacle of positive
 knowledge-science studied what could be definitely, positively and
physically known.
Super-Organic Evolution
 Herbert Spencer (1820-1903)
 He thought hat societies had natural function characteristics like living
organisms-societies produce, protect and reproduce.
Ellen Churchill
 The natural environment determined people’s racial qualities, especially
their levels of consciousness, productivity and level of economic
development.
Rationalism Economy
 Focuses on the human capacity to control the world through thought,
logic and calculation.
Rationalism in Sociological Theory
 Max Weber (1864-1920)
 His theory was based on a comparative sociology of religions-religion
being the way people thought deeply in the prescientific age.
Structural Functionalism
 It basically posits that society is a system of institutions that fulfills
naturalistic functions.
The Division of Labor in Society
 Emile Durkheim (1858-1917)
 Durkheim thought that rapid change in society, due to the increasing
division of labor, produces confusion regarding social norms, thereby
increasing impersonality in social life.
Gemeinschaft or Gesellschaft
 Ferdinand Tonnies (1855-1936)
 Distinguishes between two types of social grouping, motivated primarily
by either gemeinschaft, or community referring to groups based on family
and neighborhood bonds that engender feelings of togetherness – or
gesellschaft, or society-referring to groups sustained by instrumental
goals, as with companies or modern states.
Political Order in Changing Societies
 Samuel P. Huntington (1968)
 During economic development, political mobilization can increase faster
that the formation of the appropriate institutions, with this leasing to
social and political instability.
Modernization Theory
 Is a sociological approach that seeks to understand the process of
modernization, and the variables conducive to the development of
societies.
 It was the dominant approach to global developmental issues in the
1950s and 1960s, characterized by the search for factors that
underdeveloped countries lacked, and which were presumed.
 Has been applied to a wide range of countries including those in Africa,
Asia, and Latin America.
 It has also been used to explain the development of Western societies.
 The theory has been criticized for being too simplistic and for ignoring the
role of external factors in development.
 However, it remains an influential approach to understanding the process
of social change.
Author
1. Walt Rostow
 Who developed a five stages model of economic growth that has
been widely used to describe the process of modernization.
2. Talcott Parsons
 Who argued that modernization is a process of social change that
leads to the development of modern institutions, such as the rule of
law, a market economy, and a democratic political system.
3. Seymour Martin Lipset
 Who argued that modernization is associated with the development
of democracy.
4. Daniel Lerner
 Who argued that modernization is associated with the spread of
mass media and literacy.
 Marxism Economy Author
1. Karl Marx
Marxist Theory of Economic Development  German Philosopher, economist and sociologist.
 Believed that the structure of society is influenced by how its economy is  Famous for his theories about capitalism, socialism, and
organized. communism.
 Two classes “Capitalist and workers”  Author of the Communist Manifesto and The Four Volume Das
 Capitalist owns the means of production. Kapital (1867-1883)
 Workers sell their labor.
 This imbalance in power lead to conflict between the capitalist and the Post Structural Economics
worker.  Represents a set of attitudes and a style of critique that developed in
critical response to the growth and identification of logic of structural
5 Stages of Economic Development relations that underlie social institutions - whether they exist in terms of
political, economics, education, medicine, literature or the science.
1. Primitive Communism
 a way of describing the gift economies of hunter-gatherers Author
throughout history, where resources and property hunted or 1. Jean Baudrillard
gathered are shared with all members of a group in accordance with  Was a French sociologist, philosopher, and a poet with an interest in
individual needs. cultural studies.
 Best known for his analyses of media, contemporary culture, and
2. Slavery Stage technological communication, as well as his foundation of concepts
 people are under the control of land and they serve the owner as such as hyper-reality.
servant
Object Value System
3. Feudalism  Consumption was and remain more important than production: because
 the combination of the legal, economic, military, cultural and political the “ideological genesis of needs” precedes the production of goods to
customs that flourished in medieval Europe meet those needs.
 it was a way of structuring society around relationships that were
derived from the holding of land in exchange for service or labor. 2. Paul-Michel Foucalt
 Was a French philosopher, historian of ideas, writer, political activist
4. Capitalism and literary critic.
 Fixed wages are given in exchange for labor and surplus amount is  Theories primarily address the relationship between power and
taken by capitalists as profit. knowledge and how they are used as a form of social control through
societal institutions.
5. Socialism and Communism  He argued that simply focusing on power as equal to the law creates
 public rather than private ownership is favored a kind of “sterilizing political consequence”.
 to fix the problems they see as created by a free-market capitalist  Instead, he views power via language and how we think and know
system is the goal about things, or in other words, how power works between people,
not on people.
3. Jacques Derrida
 Was an Algerian born French philosopher.
 He developed the philosophy of deconstruction, which he utilized
in numerous texts, and which was developed through close readings
of the linguistics of Ferdinand de Saussure and Husserlian and
Heideggerian Phenomenology.
 Derrida draws our attention to two points: the distinction drawn
between law and justice; and the mystical authority of law.
 Derrida suggests that in the realization that laws authority is only
mystical one finds a key elements in the critique of juridical ideology.
 It is the key to “the desedimentation of superstructure of law that both
hide and reflect the economic and political interest of the dominant
forces of society”.
Post Colonialism Economy
 The critical academic study of the cultural, political and economic legacy
of colonialism and imperialism, focusing on the impact of human control
and exploitation of colonized people and their lands.
 The field started to emerge in the 1960s, as scholars from previously
colonized countries began publishing on the lingering effects of
colonialism, developing a critical theory analysis of the history, culture,
literature, and discourse of (usually European) imperial power.
Author
1. Edward Waide
 He believes that the consequences of colonialism are still persisting
in the form of chaos, coups, corruption, civil wars, and bloodshed,
which permeates many ex-colonies.
 The powerful colonizer has imposed a language and a culture,
whereas those of the Oriental peoples have been ignored or
distorted.
2. Gayatri Chakravorty Spivak Subaltern
 She is one of the influential critic who is related to Postcolonialism ,
Feminism, Deconstruction and Marxism.
 She was a follower of Derrida and his translator. She is the author of
translator’s preface of Derrida’s “Of Grammatology”.
 She is interested in seeing how truth is constructed rather than in
exposing error. Fundamental to Spivak’s theory is the concept of
Subaltern. The ‘Subaltern’ is a military term which means ‘of lower
rank’.
3. Frantz Fanon
 Fanon understood the power of the linguistic construction of
opposites, the One and the Other, in which one term subordinates
the other term and renders it inferior.
 The linguistic construction mirrored the domination of the white man
over the black man in the colonies and in America.
Post Developmentism Economy
 argues that there is no universal model of development to be followed.
Author
1. Arturo Escobar
 one of the leading post-development scholars who helped establish
the thesis in the 1990s.
 Escobar's claim that a growing body of scholars shared a common
position on postdevelopmentalism was a bit of an overstatement. But
there did come to be a set of ideas circulating in the publications of a
linked group of people and practiced by alternative institutions that
coexisted with some degree of ease, if not yet as a fully coherent
counter discourse.
2. Serge Latouche
 In the Wake of the Affluent Society (1993) argued that the Western
dream of la grande société (the great society, the open society, the
affluent society) promised affluence and liberty for all. Yet, these
possibilities were, like film star status, achievable only for a few, while the
price, measured in terms of the reduction of real solidarities, was paid by
everyone. Western civilization was confronted by the dark side of its
progress.
Feminism
 Feminist theory looks at the origins, characteristics, and forms of gender
inequality in order to focus on gender politics, power relations, and
sexuality.
 Feminism is consciously political and activist.
 Its politics centers on immediate issues like reproductive rights, domestic
violence, maternity leave. equal pay, sexual harassment, discrimination,
and sexual violence as well as such long-term issues as patriarchy,
stereotyping, objectification, and oppression.
 Themes related to development include the inequality between genders,
the disproportionate amount of work performed by women, and yet the
absence of women in development policy or group decision making-in
general, all of this being attributed to the subordination of women.
Author
1. Mary Wollstonecraft
 One of the first feminist writers in the liberal tradition.
 Western feminist theory usually begins with her works.
2. Olympes de Gouge
 Was a french playwright and political activist.
 She is best known for her declaration of the rights of woman and of
the female citizen and other writings on women's rights and
abolitionism.
3. Jane Austen
 Maintained that women should have the same rights and
opportunities as men.
 In her novels, many women characters were not inferior to men.
 Women deserved to share the equal rights with men.
Democratic Development
 Democratic Development Theory is a framework that seeks to explain
the process of democratic transition and consolidation in societies. It
aims to understand the factors and conditions that contribute to the
establishment and sustainability of democratic systems.
 This theory is a gradual and complex process that occurs in multiple
stages. It emphasizes the importance of various factors, including
economic development, social capital, political institutions, and cultural
values.
Author
1. Robert Dahl
 Robert Dahl was a renowned political scientist who made substantial
contributions to the theory of democracy.
 His work emphasized the role of political institutions and processes
in promoting economic development.
 Dahl argued that democracy's inclusivity, competitiveness, and
accountability make it a superior system for economic progress.
 He highlighted the significance of pluralism, civil liberties, and the
distribution of political power for a thriving economy.
Pluralist Theory of Democracy
 Dahl's pluralist theory of democracy challenges the notion of democracy
as a system of majority rule.
 He argues that democracy is better understood as a system of interest
group competition and bargaining.
 Dahl's pluralist theory emphasizes the importance of protecting minority
rights and facilitating the participation of diverse interests in democratic
decision-making processes.
2. Adam Przeworski
 Adam Przeworski is a political scientist known for his research on the
relationship between democracy and economic development.
 His work focuses on the notion of "political regimes" and their impact
on economic outcomes.
 Przeworski's theory suggests that democracy provides a favorable
environment for economic development by promoting stability,
reducing conflict, and fostering long-term planning and investment.
The Selection Effect Theory
 Przeworski's theory suggests that democracy, by allowing citizens to
freely choose their leaders through elections, has "selection effects" that
contribute to economic development.
 In a democratic system, leaders and policymakers have incentives to
pursue policies that enhance economic growth and welfare to secure
popular support and increase their chances of re-election.
 This accountability mechanism pushes governments to adopt policies
favorable to development, such as promoting investment, infrastructure
development, and human capital formation.