Alternative Economic Systems - Review Notes

The system described in detail by Samuelson is Mixed Capitalist Economy.

This is the economic system of advanced democracies of world today. It accounts for 60 percent of world income.

Marxism and socialism are important alternative economic systems.

Development or Evolution of Economic Thought

Aristotle wrote on economic issues also.

First systematic thinkers were mercantilists of the 17th and 18th centuries. They advocated the accumulation of gold and silver to improve the military and economic power of a state.

David Hume (1711-1776) showed how gold inflow would eventually end up raising prices rather than output. Physiocrats put forward arguments against mercantile thought excesses and argued that agriculture is the only source of economic surplus.

Modern economic claims its roots to 'The Wealth of Nations' by Adam Smith published in 1776.

T.R. Malthus (1766-1834) enuniciate the iron law of wages.

David Ricardo (1772-1823) believed that there were basic errors in Smith's analysis and attempted to provide alternative ideas. He wrote Principles of Political Economy and Taxation in 1817.

One of his major achievements was to analyze the laws of income distribution in a capitalist economy.

John Stuart Mill wrote his classic 'Principles of Political Economy'.

Economics developed a branch with the writings of Marx, Capital (1867, 1885, 1894). But the tradition of Adam Smith and David Ricardo was continued by W.Stanley Jevons, Carl Menger, and John Maynard Keynes.

The Keynesian Revolution

The great depression made Keynes to come out with General theory of Employment, Interest, and Money (Macmillan,1936). Economists were inspired to understand why wages and prices tend to be sticky, why nominal variables like money have real impacts, and how government fiscal and monetary policies affect the macroeconomy.

Marxism

Marx's advocated labor theory of value. what gives value to a product is the amount of direct labor and indirect labor embodied in it. In the capitalist system, profit is earned by paying only part of the labor value to the workers. As capital goes on accumulating, profits fall and capitalist pay less and less to workers and make them live a subsistence life.

Socialism

Socialists believed that the role of private property should be reduced and key industries should be run by government.





References

Paul Samuelson and William D. Nordhaus, Economics, 13th Edition, McGraw-Hill, 1989

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