Question

HISTORY OF ECONOMIC THOUGHT QUESTION:

1. Recall from your basic studies of economics, when markets are working well, the factors of production (land owners, laborers, and the owners of capital) are paid according to the value they contribute to the production process. Was that true during the time of the utopian socialists? HINT: Were some factors getting paid more than they contributed while others were paid less? How did this contribute to the problems the utopians proposed to change?

Answer 1

According to basic economics, factors of production are paid corrosponding to the valuation of how much they provide for the market ie they are paid as per the marginal productivity of the farctor. From economic production point of view that was efficient. However, socialism is a belief that everyone equally owns all factors of production and it is aquired via a democratic government. Socialism assumes that it is the basic nature of human beings to be cooperative and that capitalism has forced them to be competitive.

In capitalism, production is done due to profit. It may be most efficient in terms of economics and yes factors are being paid for what they contribute but socialism takes a human approach. In capitals the workers are dispensable. if a person is not contributing much to the production , he is removed. Also a woman may not be able to contribute to a work process because she may be bearing a child, then according to capitalism she should be paid less than her collegues as she is not being able to contribute as much to the production process. This is unethical and therefore in socialism factors of production are valued for their usefulness to people not for profit. Thus though efficient, capitalism may lead to exploitation of workers.

But one of the disadvantages of socialism is that it relies on how cooperative the people are. it is a very ideal and hence 'utopian' concept. It also doesnt reward people for being innovative and therefore this may lead to stagnation as people wont be entrepreneurial anymore.

So summing up, from economics point of view, market based economy is more effecient in terms of factor payments but it is not so from the equity point of view.