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Say had the gift of very clearly explaining the complex provisions of economic
theory. And his division of political economy into sections (production, distribution
and consumption) became the practice of textbooks and lecture courses.
Basic provisions of J. B. Say:
1. Provision on the source of value (cost) of the goods.
Say abandons the labor theory of value and puts the concept of utility at the
forefront.
"Utility gives objects value".
Utility serves as a criterion for labor productivity. Say does not agree with
either the physiocrats (only agricultural labor is productive) or with Smith (labor in
the sphere of material production is useful). He considers any work productive:
entrepreneurs, traders, artisans, farmers, doctors, teachers, etc.
2. The theory of three factors of production.
Say was the first economist to clearly formulate the idea that three factors
participate equally in production: labor, land and capital. The owner of each of these
factors (worker, landowner, capitalist) must receive a deserved income: for labor —
wages, for land — rent, for capital — interest, profit.
3. "The Law of Markets" by Say.
The law says: production always equals consumption; crises of overproduction
are impossible in a market economy.
Say argued that if too much of one commodity is produced, it is because there
is a shortage of others. The resulting disequilibrium is quickly leveled out as a result
of the movement of goods and price changes.
This law was undeniable until the 1930s — before the Great Depression. Say
did not take into account that in conditions of developed commodity-money relations,
not all money is spent on consumption; a significant part of the money is saved,
which leads to an imbalance in production. Say considered money to be a fleeting
intermediary in the process of exchange.
6.5. Defense of capitalism in the works of F. Bastiat and N. W. Senior
Frédéric Bastiat (1801–1850) was a French economist and free trade
advocate.
Main work: "Economic Harmonies" (1850).
Marx described Bastiat as "the most vulgar, and therefore the most successful
representative of vulgar economic apologetics".
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Bastiat openly defended capitalism in his works, considering it the most
perfect system.
His main idea is about economic harmony. He saw the basis of economic
harmony of bourgeois society in the exchange of services that one person provides to
another. Mutual services are provided by workers, capitalists, and landowners.
He tried to prove that under capitalism there is and cannot be any coercion,
because everyone produces useful things for the sole purpose of obtaining other
useful things. Everyone's interests are harmonious, because everyone is interested in
the other.
Bastiat argued that the accumulation of capital leads to the enrichment of hired
workers: an increase in labor productivity is followed by an increase in the real
income of workers, both due to increased wages and due to the cheaper products that
workers produce and consume.
The only thing, according to Bastiat, that can disrupt harmony is the
intervention of the state in such an established loving relationship between members
of society towards each other. He was a supporter of unrestricted freedom of
competition and complete freedom of entrepreneurial activity.
Nassau William Senior (1790–1864) — English economist, author of the
"temperance" theory and the "last hour" theory.
Senior formulated the "Theory of Abstinence" in his work "An Outline of the
Science of Political Economy" (1836). The main provisions of this theory:
- value is determined not only by labor (as Ricardo), but by production costs,
which include labor and capital;
- labor is the "sacrifice" of the worker who loses his leisure and peace, capital
is the "sacrifice" of the capitalist who "abstains" from personal consumption, turning
his capital into means of production. The reward for the respective "sacrifices" of the
worker and the capitalist are wages and profits;
- Senior replaced the concept of "capital" with the concept of "abstinence".
This concept became widespread at one time, especially in bourgeois circles,
since in Senior’s depiction bourgeois society loses its antagonistic class nature,
capitalism appears as a production system based on the mutual sacrifices of workers
and capitalists.
"The Theory of the Last Hour". In the 30s XIX centuries In Great Britain there
was a struggle to reduce the working hours from 11.5 to 10 hours. The capitalists
were in dire need of arguments against such a reduction, and Senior hastened to their
aid. He put forward a theory according to which, with an 11.5-hour working day, the
capitalist’s expenses are reimbursed in the first 10.5 hours, and profit is created in the
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last hour. Hence it was concluded that reducing the working day to 10 hours would
result in the complete disappearance of profits. And this would have a negative
impact on the economic situation of Great Britain, since incentives for business
activity would disappear for entrepreneurs. In fact, each unit of goods incurs labor
costs for both wages and profit. The theory of the "last hour" was not widespread, and
after some time Senior himself abandoned it.
6.6. Classical political economy by J. St. Mill
John Stuart Mill (1806–1873) — English scientist, representative of classical
political economy.
John Stuart Mill's father, James Mill, a famous economist, David Ricardo's
closest friend, strictly monitored the upbringing and education of his son. The
younger Mill, already at the age of ten, had to review world history, Greek and Latin
literature, and at thirteen he even wrote the history of Rome, also continuing the
study of philosophy, political economy and other sciences.
J. St. Mill's career was associated with the East India Company, where he held
a high position until its closure in 1858. In 1865–1868 he was a member of
parliament. He spent the last years of his life in France.
His main work, "Principles of Political Economy", was published in 1848. The
book was reprinted seven times during the author’s lifetime and served as a generally
accepted textbook on political economy until the end of the XIX century. The work
consists of 5 books that are devoted to production, distribution, exchange, the
progress of capitalism and the role of the state in the economy.
The main theses of the teachings of J. St. Mill:
1. Defining the subject of political economy, J. St. Mill brought to the fore the
"laws of production" and "laws of distribution". The first, in his opinion, are
unchangeable, have a natural character (for example, the laws of physics) and do not
depend on human will. And the latter are such "as they are made by the opinions and
desires of the ruling part of society, and are very different in different centuries and in
different countries". It is the laws of distribution, which are influenced by the "laws
and customs of society", that predetermine the distribution of property between the
main classes of society.
2. Mill says that it is necessary to apply a static and dynamic approach in
economic research. The static part of the theory gives a one-time picture of the
economy, and its dynamic part characterizes the processes of long-term economic
growth and development.
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3. Economic growth, according to Mill, is associated with scientific and
technological progress, improvement of the distribution system and growth of wellbeing, growth of personal and property security.
Mill also pointed out the periodic change of phases of growth and decline in
the economy. He was one of the first to note the existence of an economic cycle,
which appeared in England in 1825.
4. Wealth, according to Mill, consists of goods that have exchange value.
"A thing for which nothing can be obtained in return, no matter how useful or
necessary it may be, is not wealth... For example, air, although it is an absolute
necessity for a person, has no price on the market, since it can be obtained practically
free of charge". But as soon as the limitation becomes perceptible, the thing
immediately acquires exchange value.
5. By the cost (value) of a product, Mill understands its purchasing power in
relation to other goods. The exchange value (price) of a product is established at the
point where supply and demand are equalized.
6. Mill adhered to the quantity theory of money: an increase or decrease in the
quantity of money affects changes in the relative prices of goods. He argued that the
value of money itself "changes in inverse proportion to the quantity of money: any
increase in quantity lowers its value, and any decrease increases it in exactly the same
proportion".
7. Mill defined wages as payment for labor, suggesting that it depends on the
supply and demand for labor, or, what is the same, on the relationship between
population and capital. He repeated the conclusion of D. Ricardo and T. Malthus
about the inevitable minimum wage of workers. Mill also argued that less attractive
work pays lower wages.
8. Mill characterizes capital as "a previously accumulated stock of the products
of past labor". Capital formation, as the basis for investment, makes it possible to
expand employment and can prevent unemployment, unless, of course, we take into
account the "unproductive expenses of the rich". Mill points to a tendency for the rate
of profit (i.e., return on capital) to fall due to a fall in the marginal productivity
of capital).
9. In rent, J. St. Mill sees "compensation paid for the use of land". But, in his
opinion, it should be taken into account that, depending on the form of use of the land
plot, it can both provide rent and demand costs that exclude this income.
10. There is, says Mill, a specific type of profit, similar to rent. We are talking
about a manufacturer or trader who has some advantages in his business that others
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do not have. Because of this, the production costs of his goods are lower. This likens
the owner of an advantage to a recipient of rent.
11. Mill explains the cause of profit in the same way as Smith and Ricardo:
"Profit arises not as a result of exchange... but as a result of the productive power of
labor... If the product produced by all the working people of a country is 20 % greater
than the product consumed by the working people in the form of wages, then the
profit is 20 %, whatever the prices are".
12. The profit received by the capitalist must be sufficient for three types of
payments. Firstly, rewards for abstinence, i.e. for the fact that he did not spend capital
on his own needs and retained it for production use. This value should be equal to the
loan interest if the owner of the capital leaves the business to another.
If the owner of capital applies it directly, then he has the right to count on
greater income than the loan interest. The difference should be sufficient to pay for
the risk — secondly, and for skillful capital management — thirdly.
The total profit "must provide a sufficient equivalent for abstinence,
compensation for risk and skillful management of capital, that is, a reward for the
labor and skill necessary to control production". These parts of the profit can be
represented as interest on capital, insurance premium and wages for managing the
enterprise.
If the total amount of profit turned out to be insufficient, then "capital would be
withdrawn from production and consumed unproductively until, due to the indirect
effect of reducing its quantity... the rate of profit increases".
13. Credit, according to Mill, "does not increase the productive resources of the
country, but thanks to it they are more fully used in productive activity". The source
of credit is the capital in monetary form, which does not currently have productive
use. Credit radically changes the trade environment, expanding effective demand and
influencing the assumptions of subjects.
14. Use of credit may lead to a trade crisis.
When there is general agreement that the price of a commodity is expected to
rise, traders are willing to profit from the expected rise in prices. Attracted
speculators make new purchases, increasing the volume of loans issued, and thereby
provoke a further groundless rise in prices. After some time, the rise in prices stops,
and the owners of the goods rush to sell them. In pursuit of revenue, more and more
sellers enter the market and, as a result, the price falls faster than it rose. In the end a
trade crisis begins. This was the first presentation in the history of economic thought
of the monetary side of the dynamics of economic recession.
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15. According to Mill, the state should direct the central bank to increase bank
interest rates, since this will be followed by a tide of the foreign capital into the
country and strengthening of the national exchange rate, and preventing gold from
flowing overseas.
16. Mill supplemented the law of comparative advantage in foreign trade,
which was proposed by Ricardo. Mill put forward a position on the influence of
mutual demand of trading countries on costs. He said that even if countries have
differences in costs, then for effective exchange there must be demand for exported
goods.
17. Convinced that the basic principle should be laissez-faire (the principle of
non-interference), Mill recognized some functions of the state in the economy:
creating infrastructure, stimulating scientific and technological progress, helping the
elderly, children, and the disabled.
18. Mill especially noted the limitations of public education. The quality of
education, according to Mill, is not immediately apparent, and in order to prevent the
government from "moulding the opinions and feelings of the people from a young
age", they are recommended not to have public education, but to a system of private
schools or compulsory home education until a certain point. — old age. Government
schools may be an exception only for remote areas.
19. Mill made the first judgments about the socialist structure of society among
representatives of classical political economy (the transition from enterprises with
hired labor to cooperative production associations, the removal of land from the
sphere of unconditional action of the principle of private property, the limitation of
property inequality by limiting the rights of heirs).
So, Mill systematized and deepened the ideas, provisions, and methodology of
the classics. His teaching was aimed at achieving social compromises, resolving
contradictions between capitalists and workers in an evolutionary way without radical
forms of class struggle.
TOPIC 7. ECONOMIC VIEWS AND REFORM CONCEPTS
BY THE OPPONENTS OF CLASSICAL POLITICAL ECONOMY
7.1. Conditions for the emergence of criticism
of capitalism and classical political economy
Beginning of the 19th century was a period of rapid development of capitalism
and industrial production. The state, under the influence of the ideas of classical
political economy, refused any interference in economic relations and gave freedom
to the processes of interaction between supply and demand.
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Of course, capitalism had a progressive impact on the development of society:
large-scale industry and scientific and technological progress developed. But at the
same time, negative phenomena were also obvious:
1) along with the prosperous big bourgeoisie, a huge class of workers appeared
who were subjected to brutal exploitation and led a miserable existence;
2) as the capitalist economy developed, crises of overproduction systematically
began to arise, enterprises became overstocked, and workers found themselves
without work.
All this led to the fact that economists began to have doubts about the
correctness of the theory of classical political economy of A. Smith and D. Ricardo.
As a result of this criticism, three schools of economic thought emerged:
1) economic romanticism (petty-bourgeois political economy) — criticized
capitalism from the position of small private owners; Moreover, their ideas were
based not on strict scientific principles, but on emotions and moral issues, which is
why their criticism of capitalism is called sentimental, and their theory is called
economic romanticism;
2) utopian socialism — they demanded a radical change in social relations, the
abolition of private property;
3) the German historical school — they accused classical political economy of
being overly carried away by abstractions and generalizations and underestimating
the importance of historical facts in the development of each country.
7.2. The theory of economic romanticism
Jean Charles Leonard Simonde de Sismondi (1773–1842) — Swiss-French
economist, founder of the school of economic romanticism.
Sismondi's ancestors moved from Italy to France, from where, escaping
religious persecution, they fled to Switzerland, to Geneva. Sismondi's father was a
village pastor and at some point, his financial affairs became unstable. This forced
Sismondi to leave the University of Geneva without completing the course and enter
the service of a trading house in Lyon. The Jacobin Revolution (1793) forced him to
flee first back to Geneva, then to England, and then to Italy. Sismondi returned to
Geneva in 1798, where he took the place of secretary of the chamber of commerce.
Since 1833 — member of the French Academy of Morals and political sciences.
Sismondi is the author of numerous works on history and economics.
Sismondi's main contribution to economic science is considered to be the book "New
Principles of Political Economy, or On Wealth in Its Relation to Population" (1819).
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Sismondi was at first an adherent of the ideas of A. Smith and believed in the
advantages of free enterprise. But observations of the economic reality of the
European countries he visited (he saw the increasing exploitation of some people by
others, the ruin of small owners as a result of fierce competition, economic crises) led
to his criticism of the ideas of Smith and Ricardo as the main ideologists of
capitalism.
The roots of Sismondi's ideas can to a certain extent be seen in the peaceful
patriarchal environment in which he spent his childhood and youth. Throughout his
life, he retained the conviction that happiness most often comes to the homes of
honest, hard-working artisans and farmers and runs away from big cities with their
factories, trading offices and banks. But it was precisely this patriarchal life that was
becoming a thing of the past, destroyed by the industrial revolution, during which
crafts gave way to factory production, and the independent artisan, proud of his skill
and modest income gave way to the impoverished proletarian.
Sismondi's main views:
1. Sismondi considered classical political economy too abstract, distant from
man. He believed that political economy is a moral science that should be based on
moral ideals and focus on human well-being.
2. He was an opponent of large industry. He considered small-scale commodity
farming to be the ideal economic system.
3. He opposed the principle of state non-interference in the economy. Sismondi
noted that free competition leads to the impoverishment of a huge number of the
population, while wealth is concentrated among a narrow circle of people.
4. He condemned the deterioration of the situation of workers as a result of the
industrial revolution. To improve their situation, he proposed introducing social
security at the expense of the entrepreneur, limiting the length of the working day,
establishing a minimum wage, etc. At the same time, Sismondi believed that wages
should be equal to the entire value of the product of the worker’s labor.
5. Sismondi, unlike the classics, believed that under capitalism production
constantly outstrips consumer demand, therefore crises of overproduction are a
constant phenomenon in the economy. The insufficiency of consumer demand was
explained by the low purchasing demand of workers, limited, in his opinion, to
consumer goods, and the existence of accumulation on the part of capitalists, who
save a significant part of their income in order to further expand production.
Sismondi saw the way out of crises in the fact that the capitalist increased the
incomes of workers. He also created the "third party" theory. He included peasants,
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artisans, etc. among third parties and believed that with their income they could
smooth out the overproduction of goods.
Pierre-Joseph Proudhon (1809–1865) — French politician, publicist, petty-
bourgeois economist, philosopher, considered the founder of anarchism.
Proudhon was born and raised in a poor family. Since childhood, Proudhon has
been helping his parents with housework, from the age of 12 he has been studying at
college, working part-time in a hotel, and is actively engaged in self-education.
Financial difficulties forced him to leave college and become a worker in a printing
house. Then he works as a manager of the company, and continues to educate
himself. The Parisians elect Proudhon as a deputy to the National Assembly.
Proudhon was a brilliant publicist, but did not have deep knowledge in the field
of social sciences. He showed himself to be an eclectic, i.e. an exponent of different,
sometimes contradictory views.
Proudhon's most famous work is "What is Property" (1840), which concluded
that "property is theft". Proudhon also wrote the works "The System of Economic
Contradictions, or the Philosophy of Poverty" (1846), "The Solution of the Social
Problem" (1848), etc.
Proudhon, like S. Sismondi, in his works criticized the capitalist economic
system, in which the hired worker found himself in a disadvantageous and difficult
position. However, unlike Sismondi, Proudhon, while defending the interests of the
petty bourgeoisie, did not deny capitalism, but wanted to improve it.
Proudhon is an anarchist theorist who gave a thorough critique of the state of
his time. He put forward the idea of replacing the state with contractual relations
between individuals, communities and groups of producers. The scientist
categorically rejected the idea of a revolutionary elimination of this unjust society.
Proudhon's idea of abolishing government is based on the fact that a merger of
classes is possible as a result of reforms.
He developed a program of social reforms, which included the introduction of
an age limit for the hired labor of young children, a reduction in the working hours of
adult workers, curbing the development of monopolies, etc.
Economic ideas of Proudhon:
1. Property has positive and negative sides. The negative side of property is the
violation of equality between people. Positive — independence, self-reliance and
freedom. Small property has more positive qualities, while large property has more
"negativity". It is necessary to preserve small property and abolish large property.
2. He calls the value of a product recognized by the market constituted.
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3. In order to avoid crises, it is necessary to establish value in advance, i.e. do
not make unnecessary products. A sale is not equal to a new purchase, since part of
the money is saved in the form of savings, and, therefore, does not participate in
commodity-money relations, thus reducing the money supply in relation to the
commodity supply. In order for all goods to find their buyer, you need to make sure
that there is nothing to accumulate — abolish money. To prevent crises, it is
necessary to replace the monetary relationship with barter. An example of a
constituted commodity is gold and silver.
4. Proudhon considers another reason for the crisis of overproduction to be the
discrepancy between wages and the cost of the commodity mass; the commodity
mass is more than the main consumers — workers — can spend on it. Salaries cannot
provide sufficient demand, since the bourgeois adds to the cost of goods the
percentage that he must pay to the banker for providing a loan. The solution is to
organize a people's bank of France, which would issue free loans.
Such reforms would lead to the establishment of a new system. Everyone
would work, exchange equal amounts of labor, and economic equality would be
established. And if the industrialist had abandoned the political struggle, then a new
system would have been established.
7.3. Economic ideas of utopian socialism of the 19th century.
Utopian socialism appeared in the 16th–17th centuries. in the works of
T. More, T. Campanella. A new wave of socialist ideas arose in the 19th century. as a
protest against the capitalist structure of society.
Claude Henri de Rouvroy, comte de Saint-Simon (1760–1825) was a French
utopian socialist.
Saint-Simon is a hereditary aristocrat; he grew up in his father’s count’s castle.
Since childhood, he suffered from delusions of grandeur: he ordered his servant to
wake him up with the words: "Get up, Count, great things await you! " At the age of
16 he entered military service and participated in the American War of Independence.
Traveled through Holland, Spain, participated in the Great French Revolution.
Refused the count's title and surname. Engaged in speculation in the confiscated
property of churches and nobles. He was the owner of a luxurious Parisian salon.
Builded grandiose transformation projects. Author of bright journalistic treatises, he
has been living in poverty for the last 20 years. Disappointed in life, he tried
(unsuccessfully) to commit suicide. He wrote books "Catechism of the Industrialists",
"New Christianity", tried to create a new religion.
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