Issues in Political Economy
Political economy is concerned with the social production and distribution of material wealth at the various stages of development of human society. It deals with the production of material in their social form, with the economic laws becoming inherent in specific types of production. It explores the development of the social production and studies how the exploitation of man or wage earners in capitalism arises, progresses, and how it is abolished. It also shows how the whole course of historical development paves the way for the inception of the socialist mode of production. It further deals with the economic laws of socialism, the laws that show how socialism society has originated, and successive development of the same along the lower to the higher phase of communism. It explains the laws regulating the production and distribution of material wealth in human society at the different stages of its development. The political economy is distinguished by the many schools of thought that give the important range of viewpoints and dynamic internal debate. The most popular school or traditions are Marxism, Classical, Neo-Classical, and Keynesian Economics. The paper will examine them in their relation to capitalism and their proposals of reforms as well as the role of the government in the capitalist economy.
Role of the Government in Capitalist Economy
Capitalist economy provides public goods. Public goods are those that people need and benefit everyone but that the private sector cannot provide. They help everybody, whether they pay for them or want them or not. They include defense of the community from attack and invasion through the creation of police forces and deployment of armed forces in the borders, provision of roads, clean water, and public education among others. More developed countries provide more public goods to their citizens.
The government also sustains order and growth in the economy. Lack of order in the economy may cause social discontent and political mayhem. On the other hand, lack of economic growth leads to unemployment, which also creates discontent. Persistence in poor economic growth may cause the inability of a nation to defend itself from attack or invasion. Most governments manage their economies through economic policies aimed at maintaining a stable currency and economic growth at a rate that balances inflation and unemployment (Hobsbawm, 2011).
It comes up with the legal actions that stop companies from engaging in anti-competitive practices and creating the monopoly. These practices are designed to limit competition such as agreements among competitors to fix prices at a certain level. In a capitalist economy, it ensures that the market operates appropriately to enable the delivery of greatest goods to the highest number of people.
Capitalist economy stabilizes and helps the economy in bad times. The state of the economy cannot be always stable, so it usually fluctuates. When the economy of the country is favorable, people produce a lot of goods since there is money. On the other hand, the unfavorable economy characterized by unemployment leads to the factories not selling their products. During the time, the government lowers taxes and interest rates so that people could borrow money more easily.
According to Harvey (2010), capitalist economy is characterized by rich and poor people. Whereas the former can afford everything, the latter have little money and they cannot afford clothing, food, and a place to live. Many countries have come up with the social market economy with an aim of helping poor people, while the richer people have to pay more taxes.
Traditions of Political Economy and Proposals of Reform
Such economics is concerned with the examining of the crisis in capitalism, the distribution of the surplus product and value in different types of economic systems, the nature and source of economic value, the impact of class and their struggle on economic and political processes, and the process of economic evolution. Marxists describe capitalism as social, economic relation between people rather than between people and things. Therefore, they want to eliminate capital since they believe that capitalism exploits workers by enriching capitalists at the expense their work. Karl Marx views that under capitalism, the working class depends on the ruling class and the owners of the means of production, thus restricting the human freedom. According to Eric Hobsbawm (2011), capitalism would make the working class poor and lay grounds for a revolution. Normative Marxism proposes overthrow of capitalism to pave the way for socialism before it can be transformed into communism after classes and the state cease to exist. Marxism also proposes reforms that would regulate capitalism rather than abolishing it. Karl Max supports labor parties and democratic socialists in an attempt to seek change through existing democratic channels instead of revolution.
Classical economics stresses that economy can perform effectively if people pursue their interest in a free and open communication. The focus on specialization is that everyone produces their best things, and they trade with what others produce best. The political economists such as Adam Smith, David Ricardo, and John Stuart Mill argued that countries should produce goods and services, in which they have either the greatest advantage or the least disadvantage regarding the relative costs of production. According to Panitch and Gindin (2012), the trade should involve the countries having different opportunity of costs of production. Thus, each country is required to specialize in areas with the lowest opportunity costs where global output and efficiency are maximized. Henry George, another political economist, played a role in classical economics by proposing several reforms. He argued that the economics of land should be shared by the public rather than being owned privately. He further proposed abolishment and limitation of intellectual property privilege as well as opposing the tariffs that were the source of the government’s revenue.
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This type of economics focuses on the determination of goods, outputs, and income distributions in markets through supply and demand. This determination is done through maximizing of the utility by low-income people and profits by organization experiencing production costs and employing accessible information and factors of production, which is stated by rational choice theory. John Bates Clark, the neo-classic economist, states that the business has the social responsibility to use its resources and engage in activities that are aimed at making the profit (Panitch & Gindin, 2012). It introduces governmental market regulation that favors property rights and non-regulated labor markets. This tradition views capitalists as earning profits by forgoing current consumption, by taking risks, and by organizing production. John Bates Clark further proposed the minimal interference of the government to prevent depressions and to make the market economy stable (Panitch & Gindin, 2012).
Keynesian economics focuses on how economic output is influenced by the aggregate demand, especially during the recession. Keynesian economics challenged the view that the capitalist economics could operate well on their own in the absence of the government interference (Harvey, 2010). Keynes argued that some of the decisions made by the private sector might lead to unproductive macroeconomics outcomes, which might require policy response by the public sector. Keynes acknowledged the presence of structural inadequacies like unemployment as the result of imbalances in the demand. He argued that the government should put under-utilized saving to work through spending. Keynes proposed the formation of the mixed economy dominated by the private sector with government interventions during the recessions. He further recommended measures such as cutting the wages and deterring people from holding the money to avoid recession.
Political economy shows how the people from capitalist nations can free themselves from the bondages of the capitalism. It explains the rise and development as well as the downfall of social-economy based on the private ownership of properties. According to economics, the creators of wealth are proletariat and beneficiaries are the working class thus, the slavery and the poverty are rooted in the capitalism system of the economy. Unemployment and poverty cannot change without the means of production passing from the private ownership of the capitalists and the landowners into the social ownership of the working peopl.