Economy and Society II

The economy before the industrial revolution was fairly simple;

  • Local market exchanging goods on a small scale
  • Intercontinental trading - but not largely an impact on the majority of the populous
  • Most citizens live on what they produce (complementing it with local products).
  • Overseas trading only brought luxuries or curiosities to the ruling class.

After the industrial revolution the social structure of the local community and family were all drastically changed. Although humanity has always been exploiting the potential of technology for economic gain, it was not until the industrial revolution that brought the enormous changes in the society.
Europe witnessed unprecedented economic growth along with unprecedented human misery. Traditional support systems broke down as a result of the new political and economic systems (ie: religious bonding, affect of urbanisation on the extended family).

Thomas Robert Malthus

English demographer and political economist, lived from 1766-1834. Stated the problems attributed to the industrial revolution were the result of fast population growth and slow increase in productivity.
He stated: "Population had a natural growth rate described by geometric progression whereas the natural resources necessary to support the population grew at a rate similar to an arithmetic progression. Without restraints, therefore, there would be a continued pressure on living standards; both in terms of room and of output".

Karl Heinrich Marx

19th century philosopher, political economist and revolutionary (1818-1883). He attributed the problems to wealth distribution. He argued that the political and economic institution are established in such a way that the capitalists were able to accumulate wealth by exploiting the labourers hired by them.

  • The value of commodities is determined by the quantity of labour consumed in the production; that is, capital does not itself generate wealth - it is the labour performed on it that makes it 'worthy'.
  • The capitalist pays the labourer a exchange value determined by "reproduce cost" of the labour.
  • However, the value of the labourer to the capitalist who uses him/her is greater than the value the capitalist paid him in exchange for his/her services. The difference is called 'surplus value'.

John Maynard Keynes

British economist (1883-1946). He saw the problem differently, and instead formulated modern economics.

  • When the economy declines, this leads to a reduction in production
  • This leads to cutting wages, saving money for investment
  • This money increases economic activities, creating demand for labour
  • Wages increase, which again leads to declining economy…

However, Keynes states that in a declining economy the number of people able and willing to work at prevailing wages exceeds the number of jobs available. At the same time, firms are unable to sell all the goods they produce. Over supply thus exists in both the labour and goods markets. Keynes argues that unemployment cannot be resolved by the free market.

The "growth forever" neo-classical economist solution argues:

  • Economic growth → lower birth rates
  • Lower birth rates → fairer wealth distribution
  • Unemployment is reduced

Over-population

Historically, richer countries have lower birth rates than poorer ones. (Demographic transition: children become too expensive in terms of other goods)

Unequal resources distribution

The "trickle down" principle states that when there is plenty to go around, the poorer sector of society will benefit from a bigger share of the total resource(s).
In reality growth increase → inequality, both within and among nations.

Unemployment

It is commonly believed that economic growth → increase in employment. However this is not the case in some circumstances (ie: capital intensive industry)

Ecological degradation

Wealth from economic growth invested can be invested in resolving environmental problems. However this is usually not the case and wealth generated by economic growth is rarely used to resolve global environmental issues (global warming, ocean pollution, etc)


Radical solutions

  • Population control → over-population
  • Redistribution of wealth → unfair wealth distribution
  • Public employment → unemployment
  • Ecological tax reform → ecological damage
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