1-Discuss the significance of the difference between mainstream economics and political economy (as we have described in this course). In your response, please discuss the role of thinkers such as Adam Smith and Karl Marx. Do we often misinterpret and misunderstand the insights of these thinkers?
Mainstream Economics is commonly described as conventional or orthodox economics, which is based on the evolved theories and implementation of political-economic concepts. It is perceived as positive economics, as it based on facts and statistics, rather than on the notions and perceptions. Mainstream economics are also interpreted as the economics, which is taught and applied in real (Ozanne 127). For instance, the Keynesian economic system is a manifestation of mainstream economics; however, a Marxian model of economics is not considered mainstream, but rather it is considered unorthodox/unconventional/odd.
Political Economy is a study of various kinds of political, economic notions, emphasizing on how an economy should be, what kind of structure, it must have, what kind of opportunities it must be produced and what kind of economic activity it must generate. For instance, political economy discusses the production and trade from various perspectives, how production and trade are affected by the law of government. It also discusses how it affects society and National Income (distribution).
The difference, mainstream economics, and political economy are slight. Mainstream Economics only discusses those theories, models, and policies that are widely accepted. However, political economy is comprised of various kinds of political-economic thoughts, which are taught and discussed to understand political systems in a compressive manner. However, it is also a fact that some of the theories, which are now considered odd or unconventional, were once mainstream politics-economic ideas. For instance, Marxian economic theory and model was once a mainstream economic theory and model. However, with time, its relevance reduced and nations become redundant.
It must be acknowledged that different political-economic notions were the result of economic evolution and therefore; we must never be dismissive about them. Theories, like Marxism, are neglected or ignored, as it is believed that this theory has lost its relevance. However, we learn that to understand capitalism, comprehensively, it is imperative to understand it from a Marxian perspective. It helps users understand inherent contradictions of the system, and we can comprehend why government interventions are imperative to keep the capitalist economic model functional at an optimal level (Martinez 66).
It is also evident that because of the apparent contradictions or other such reasons (politics), mainstream economists are quite dismissive about the particular school of thoughts, of political economy. For instance, Adam Smith assertions regarding classical economic model were based on the realities of that time. However, some of the assertions are quite accurate, which suggests that these there understanding of the economy and its impact on politics and society was quite expanded. Adam Smith asserted that free trade would be the quickest path to increase production and employment. The trade would rely on absolute advantage.
Marx’s perspective regarding economy was quite different from that of Adam Smith, as he focused on the contradictions of capitalism and its exploitative nature. Still today, we can accurately predict the behavior of the capitalist model with the help of Marxian theories. Similarly, Marx’s assumptions regarding the obligations of the state are not very absurd; in fact, we are moving towards a state with large government. Therefore, it is true to some extent that these philosophers and thinkers are misunderstood and misinterpreted by people (Pack 111).
2-Do you believe that Adam Smith provides us with a useful model to understand and conceptualize capitalism in the modern age? In your response, please discuss the two of the following ideas: mercantilism, the invisible hand, innovation and the free market.
Adam Smith’s economic model was quite comprehensive, and it discussed various factors, which are essential for the sustenance of such economic model that is devised to produce political-economic results. It must be acknowledged that Adam Smith discussed political-economic results; however, he believed in laissez-faire economic model. The modern economic system is quite different from the pure capitalist model, as it has a fiscal instrument, it is capital intensive, and the government regulates markets and industry; however, still economic model and theory of Adam Smith can be used to conceptualize a contemporary economic system (Sotiropoulos, Dimitris P. et al. 99).
The concept of the free market is emphasized in Adam Smith’s model. He asserts that supply and demand should determine prices and regulate production, rather than the government. He further asserts that government intervention creates various kinds of challenges, such as surplus and shortages. In contemporary systems too, governments allow demand and supply to determine price and production; however, in some cases, such as food prices, government intervenes. Adam Smith’s postulation that government intervention can yield economic issues is quite true, as we witness that in New York City, because of the rent controls, there is a shortage of apartments.
Adam Smith further states that invisible hand controls or regulates markets. It implies that when the demand of a product increases (shift of the demand curve to the right), the price increases, which acts as an incentive for producers to produce more. This expansion of supply curve brings prices back to original and form a new equilibrium at greater scale of production. The modern market system works on the same principles, which is why Adam Smith Model is still relevant to understand the contemporary economic system (Martinez 231).
One, of the subjects, which is discussed by Adam Smith in his theory, is a competition that leads to innovation. However, his understanding of innovation was quite primitive and only in the context of improving industrial production mechanisms. However, this concept can be used to understand how modern corporate and economic systems emphasize on innovation for a competitive edge over a rival (Sotiropoulos, Dimitris P. et al. 88).
We must acknowledge that the Liberal economic model is an evolved form of the classical economic model, which is why various concepts of the previous model are still relevant and govern it to some extent.
3-Discuss the significance of the ideas of Karl Marx to an understanding of capitalism. Discuss Marx’s core ideas of alienation and exploitation. Are these key ideas in our attempt to grasp modern capitalism?
Karl Marx’s understanding of capitalism is drastically different from Adam Smith and other contemporaries of his time. Karl Marx viewed Capitalism as a system, which is based on exploitation. As during his time, the only variable factor was labor, and it was believed that labor was the only factor of production; therefore, entire emphasis, of the production was in labor. Producers believed that wages determine the cost and for sustainable economic system, prices must be stable, which was why system took various measures to keep wages stable. Marx viewed these measures as unethical and deemed them explosive. He also learned that economic system had several contradictions, one of which was overproduction or surplus (Dworkin 156).
Marx discussed surplus in detail and asserted that they might result in catastrophes of various natures. Many political economists are of the view that The Great Depression had resulted in World War II. He has also asserted that Capitalism is progressing at staggering speed in its initial stages; however, it eventually stagnates, because of its internal contradictions. It was one of the reasons to introduce the fiscal instrument. After a certain point capitalist economies slow down (recession) and economy requires expansionary monetary and fiscal policies to end the recession (Sotiropoulos, Dimitris P. et al. 90).
Marx’s theory of alienation asserts that because of the class-based society, humans become estranged and the collective conscious is adversely affected. People, of a certain class, are only concerned with the opportunities and challenges of that class and they hardly ever concern themselves with the challenges faced by people from different strata. Therefore, it is essential that society must be classless and all efforts should be channeled to improve state, which yields opportunities and has instruments/institutions to resolve issues. Also, the scare resources also push towards a socialist economic model (Dworkin 57).
It must be understood that these two concepts are not adequate to under comprehensively understand capitalism economic model. Also, the current economic model is quite different from the pure capitalist economic model and quite close to the socialist economic model as the size of government is large and it provides various services such as education and health care.
4-Discuss Weber’s idea of the relationship between capitalism and the Protestant ethic. Do you feel that this explains a key motivator for the emergence of capitalism? In your response, please discuss the significance of Weber’s notion of interpretive sociology.
Weber attempted to understand work, business and profit from a religious point of view. He asserts in his theories that there is a positive correlation between protestant ethics and capitalism. He conjectures that Protestant theology is based on hard work and reward and reward in itself is a sign of God’s favor. Webber further claims that profit is in itself an end and this end has meant. However, what important is that this means must be non-controversial and it must result in a greater good. In a nutshell, profit is an end in itself and pursuing profit, by various non-controversial means, is virtuous (Weber 170).
When we study this theory of Weber and its origin, we learn that it was inspired by Calvinism, a branch of Protestantism, which views good results as a sign of God’s favor and approval. Based on that Weber argues that profit, which is a desired product or end, is a God’s favor and the more one has it, the more God is happy with him/her. It is my ways represents capitalism too. For instance, in capitalism, profit is the ultimate goal, and the more profit is earned by a corporation or enterprise, more it is appreciated. Therefore, it can be asserted that in various ways Weber’s theory has facilitated the emergence of Capitalism and very craftily linked it to Protestantism (Sotiropoulos, Dimitris P. et al. 130).
Weber’s interpretative sociology is also closely linked to his devised concept that Capitalism is governed by protestant ethics. Max Webber asserts that to understand a phenomenon, it is imperative to understand that phenomenon from the perspective of those, who are involved in it. It means that it is essential to understand Capitalism, not only from labor’s perspective, but also from the employer’s perspective. Similarly, it is essential to understand how a system has affected consumers, make it a just or an appropriate system (Torrance 36).
5-Discuss Veblen’s idea of ‘conspicuous consumption.’ Do you feel that this idea goes to the core of modern behavior in a capitalist society? Further, is consumption the key organizing and motivational principle of the modern economy? And, what are the dangers of such a focus on consumption?
Capitalism is based on the perpetual consumption. However, if we study, it subtly endorses conspicuous consumption. Capitalistic societies enormously affected by supply side and this notion that supply creates its demand still adhered or acknowledged. When we combine this notion with the fact that luxurious goods offer higher profits, then it creates various kinds of challenges. For instance, individuals in society would strive to acquire more wealth, so that they could realize a certain dream devised by the social-economic system. In case of capitalism, it will be luxurious life, which can be sustained by enormous financial resources (Sotiropoulos, Dimitris P. et al. 106).
It is evident that consumption is the prime concern in a capitalist economy and when it dwindles, the economy starts to collapse; recession/depression, which forces the state to use the fiscal and monetary instrument to increase consumption via increased employment level. Such system also affects limited resources (adversely). As most of the resources are allocated to produce luxury goods, the economy suffers, and it has catastrophic long-term effects.
Other than the allocation of resources into the luxury goods, manipulation or generation of artificial demand is another issue. Advertisements are used as an instrument to manipulate demand, which also has stern ramifications for an economy. Therefore, we can say that modern capitalism in many ways based on consumption, and it has devised such tools and instruments with which it can manipulate demand (Kozinets and Handelman 699).
For these reasons, the government has to intervene and regulate markets to an extent, so that the inherent contradictions of the system may not become a reason for its implosion. States, around the world, have institutions to ensure that markets may not fail the liberal economic model, which is based on the notions of capitalism.
Work Cited
Dworkin, Ronald W. How Karl Marx Can Save American Capitalism. Lexington Books, 2016. Print.
Kozinets, Robert V and Jay M Handelman. “Adversaries of consumption: Consumer movements, activism, and ideology.” Journal of consumer research (2004): 691-704.
Martinez, Mark Anthony. The Myth of the Free Market: The Role of the State in a Capitalist Economy. Kumarian Press, 2009. Print.
Ozanne, Adam. Power and Neoclassical Economics: A Return to Political Economy in the Teaching of Economics. Palgrave Macmillan UK, 2016. Print.
Pack, Spencer J. Aristotle, Adam Smith and Karl Marx: On Some Fundamental Issues in 21st Century Political Economy. Edward Elgar Publishing, 2010. Print.
Sotiropoulos, Dimitris P, John Milios and Spyros Lapat. A Political Economy of Contemporary Capitalism and its Crisis: Demystifying Finance. Routledge, 2013. Print.
Torrance, John. Karl Marx’s Theory of Ideas. Cambridge University Press: 1995. Print.
Weber, Max. The Protestant Ethic and the “spirit” of Capitalism and Other Writings. Penguin Books, 2002. Print.
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