BSIT 3y2-1
Assignment in Economics
David Ricardo maintained that the economy generally moves towards a standstill. His analysis
is rooted in a modified version of the labor theory of value. He held out the belief that the rate of
profit for society as a whole depends on the amount of labor necessary to support the workers
who farm "the most barren land that can still maintain agriculture" This model breaks land down
into categories based on average fertility rates. The most fertile land naturally produces more
food than land of poorer quality. As a result it commands a higher rent. The poorest land utilized
for agriculture receives no rent, with all of its earnings going to cover labor and capital costs. The
difference between the output from the least fertile land which can still be farmed and that of a
higher quality constitutes the source of rent on the better land. As the population grows, poorer
land must be cultivated in order to meet the growing demand. The cost of rent for good land then
increases. This, coupled with the fact that poor land necessitates increased labor input to
maintain minimal output results in falling profit levels. As rents rise, profits fall. Essentially, rent
costs gobble up profits as the population increases. Since profits lead to reinvestment and thus
growth rising rent costs indirectly prevent economic progress.
Karl Marx, a German economist and political scientist who lived from 1818 to 1883, looked at
capitalism from a more pessimistic and revolutionary viewpoint. Where Adam Smith saw
harmony and growth, Marx saw instability, struggle, and decline. Marx believed that once the
capitalist (the guy with the money and the organizational skills to build a factory) has set up the
means of production, all value is created by the labor involved in producing whatever is being
produced. In Marx's view, presented in his 1867 tome Das Kapital (Capital), a capitalist's profits
come from exploiting laborthat is, from underpaying workers for the value that they are
actually creating. For this reason, Marx couldn't abide the notion of a profit-oriented
organization.
This situation of management exploiting labor underlies the class struggle that Marx saw at the
heart of capitalism, and he predicted that that struggle would ultimately destroy capitalism. To
Marx, class struggle is not only inherent in the systembecause of the tension between
capitalists and workersbut also intensifies over time. The struggle intensifies as businesses
eventually become larger and larger, due to the inherent efficiency of large outfits and their
ability to withstand the cyclical crises that plague the system. Ultimately, in Marx's view, society
moves to a two-class system of a few wealthy capitalists and a mass of underpaid,
underprivileged workers.
Thorstein Veblen | Economics (1857-1929)
As unconventional in his personal life as in his academic career, Thorstein Veblen always seemed
to stand outside of his social and intellectual environment. In 1906, after fourteen years at the
University of Chicago, some of which he had spent as a research fellow and instructor, he had
risen only to the rank of assistant professor. Yet it was during these same years that he made
many of the probing observations of American life which have brought him enduring attention.
Veblen was one of the first academics to examine seriously the relationship between
consumption and wealth in society. Although he trained and worked as an economist, he
incorporated sociological and anthropological research into his own work. His classic work, The
Theory of the Leisure Class (1899), written at Chicago, dissected the behavior of the wealthy in
an increasingly materialistic world, coining the phrases conspicuous consumption, pecuniary
emulation, and conspicuous waste. The book's effectiveness was enhanced by Veblen's seemingly
dispassionate and impersonal style. In fact it was a savage and frequently ironic if extremely
erudite assault on current values. John Kenneth Galbraith has called it one of only two books by
nineteenth-century economists that is still read