Other Schools of Thought: Marxian to Keynesian Economics

Other Schools of Thought: Marxian to Keynesian Economics

• The presentation was prepared by Assoc. Prof. Karen Grace Valdez, Ph.D., from the Department of Business Economics at the University of Santo Tomas, College of Commerce and Business Administration, España, Manila.

Karl Marx

• Karl Marx was a German philosopher, economist, sociologist, and revolutionary socialist.
• He co-authored the Communist Manifesto with Friedrich Engels.
• His ideas on class struggle and the overthrow of capitalism profoundly impacted social and political thought.

Historical Materialism

• Marx believed history progressed through stages driven by economic changes and class struggles.
• The way societies provide for their material needs shapes their social relations, institutions, and ideas.
• The economic structure ('base') determines the social, political, and cultural institutions ('superstructure').

Class Conflict

• Society is divided into two main classes: the bourgeoisie (owners of the means of production) and the proletariat (workers).
• The bourgeoisie exploits the proletariat, leading to class conflict and ultimately revolution.

Alienation

• Under capitalism, workers are alienated from their labor, the product of their labor, and their fellow humans.

Labor Theory of Value

• The value of a commodity is determined by the amount of labor required to produce it.
• Profit is generated by exploiting the surplus value created by workers.
• Surplus value is the difference between the value of the worker's labor and the wages they receive.

Capitalism's Inevitable Demise

• Marx believed capitalism would eventually lead to its own downfall due to increasing concentration of wealth and power in the hands of the bourgeoisie, immiseration of the proletariat, and overproduction and economic crises.

Socialism and Communism

• Marx envisioned a socialist society where the means of production would be owned and controlled by the workers.
• This would lead to a classless society where everyone receives according to their needs and contributes according to their ability.

Utilitarianism

• Utilitarianism is a moral philosophy advocating for actions maximizing overall happiness or well-being, influencing economic thought in areas like welfare economics and public policy.
• Utility: Actions evaluated based on consequences for overall happiness or well-being.
• Greatest Happiness Principle: Actions are morally right if they promote the greatest happiness for the greatest number of people.
• Consequentialism: Focus on the consequences of actions, not intentions.
• Impartiality: Everyone's happiness considered equally.

Jeremy Bentham (1748-1832)

• Developed Felicific Calculus, a method to measure pleasure and pain to evaluate consequences of actions.
• Advocated for social reform, including prison reform, animal rights, and women's rights to maximize societal happiness.

John Stuart Mill (1806-1873)

• Distinguished between higher (intellectual/moral) and lower (physical) pleasures, arguing higher pleasures are more valuable.
• Advocated for individual liberty, believing individuals can pursue their own happiness as long as it doesn't harm others.

Marginalist School

• A departure from classical economists, emphasizing individual decision-making and marginal utility in determining economic behavior.
• The marginalist theory of value is based on subjective scarcity; how much people want a good relative to how much is available determines its value.

William Stanley Jevons (1835-1882)

• Independently developed the concept of marginal utility, arguing value is determined by marginal utility not total utility.
• Pioneered the use of mathematical methods in economics, especially in analyzing utility and demand.

Carl Menger (1840-1921)

• Emphasized the subjective nature of value, arguing that the value of a good is determined by its marginal utility to the individual.
• Advocated for methodological individualism, focusing on individual actions and decisions rather than abstract social forces.

Léon Walras (1834-1910)

• Developed a general equilibrium model showing the interconnectedness of all markets in an economy using simultaneous equations.
• Pioneered the use of advanced mathematical techniques for analyzing economic problems.

Neoclassical Economics

• Focuses on individual decision-making, market efficiency, and equilibrium.
• Assumes rationality: individuals maximize utility or minimize costs.
• Emphasizes marginalism: focusing on additional benefits/costs of small changes in variables.
• Believes competitive markets tend toward equilibrium, allocating resources optimally to maximize social welfare.

Alfred Marshall

• Popularized supply and demand analysis, showing intersection of curves to determine equilibrium.
• Introduced elasticity, measuring responsiveness of quantity to changes in price.
• Differentiated between time periods (market, short, and long run) for analyzing market adjustments and costs (fixed vs variable) influence on production.
• Defined consumer/producer surplus; and how diminishing marginal utility and equimarginal principle maximize satisfaction/profit.
• Analyzed external factors affecting firm costs and efficiency (external economies/diseconomies).

Institutional Economics

• Emphasizes the role of institutions (laws, customs, social norms) in shaping economic behavior and outcomes.
• Unlike neoclassical economics focusing on individual rationality and market efficiency, this school highlights the importance of social, political, and cultural factors.

Thorstein Veblen (1857-1929)

• Introduced conspicuous consumption, where individuals show wealth/social status through consumption.
• Criticized the capitalist system for prioritizing pecuniary gain over social/cultural values.
• Argued that technological innovation leads to economic/social change, often resisted by vested interests.

Welfare Economics

• Uses microeconomic techniques to evaluate the social desirability of economic policies.
• Aims to assess the impact on social welfare (efficiency, equity, social justice).
• Concepts include social welfare function and Pareto efficiency, optimal resource allocation to maximize social welfare, fair distribution.
• Addresses market failures (externalities, public goods, imperfect competition)

Vilfredo Pareto

• Introduced the concept of Pareto efficiency, a fundamental concept in welfare economics.
• Contributed to the development of social welfare functions.

Arthur Cecil Pigou

• His book "The Economics of Welfare" is foundational in welfare economics.
• Analyzed externalities, costs/benefits affecting parties not involved in transactions.
• Proposed Pigouvian taxes/subsidies to correct market failures caused by externalities.

Keynesian Economics

• Emphasizes government intervention in stabilizing the economy.
• Challenges the classical view that free markets automatically adjust to achieve full employment.
• Key aspects include aggregate demand as the primary driver of economic activity, government intervention (fiscal policy), and multiplier effect (initial spending leading to larger economic increase), sticky prices/wages (slow to adjust to changes).

John Maynard Keynes (1883-1946)

• His book "The General Theory of Employment, Interest, and Money" challenged classical economic theory and introduced new frameworks
• Advocated for fiscal policy (government spending/tax cuts) to stimulate demand during downturns.
• Recognized the role of monetary policy, particularly interest rate adjustments, in influencing economic activity.

Explore the fundamental concepts of Marxian economics and its historical context in this quiz. From Karl Marx's critical theories to the implications of class conflict, delve into the evolution of economic thought and its impact on society. Ideal for students of business economics and social sciences.