Question

Adam Smith, David Ricardo, and Thomas Malthus had strikingly different views of the long-run tendencies of the capitalist system.  Present each writer’s forecast about the future development of capitalism..  State the theoretical differences among these economists that led to these different views of the future.  Include in your discussion the policies that each of the writers regarded as the most appropriate for advancing society

Answer 1

Adam Smith, David Ricardo and Thomas Malthus are classical economists.

Smith is known as the “Father of Economics” and in his landmark treatise “Wealth of Nations”, propounded the principles of Free Markets (Laissez Faire). Accordingly, markets should be kept free from any external regulatory intervention. The role of governments ought to be limited to defence, law & order and basic amenities / utilities. The invisible hand of market forces and its rational constituents could determine what is best for them and in turn maximising the wealth of a political economy. Thus seeds of capitalism were sown by Smith. Therfore he is also known as father of capitalism. His work helped in moving economies away from feudalism and mercantilism.

David Ricardo’s semantic work is “Principles of Political Economy & Taxation”. He propounded theories related to rents, wages and profits. Accordingly, with the increase in rent and wages, profits are reduced and prices are not impacted. As economy grows and reach stationery state, profits become near zero. Therefore in order to maximise profits, political economies need to find their respective comparative advantages for international trade (and not just absolute advantage as propounded by Adam Smith) or go for technological advancements (latter was ruled out by Ricardo himself as this impacted labour and wages). He was also instrumental in theorising laws of diminishing returns.

Thomas Malthus did remarkable work on the impact of population in his milestone work, “An Essay on The Principles of Population”. Accordingly the exponential population growth could not be supported by finite availability of resources. With population growth, wages remain at sustenance level and communities remain torn by wars, calamities, famines and diseases.

In a way, Ricardo and Marthus tried to rein in the flawless capitalism of Smith by highlighting the future end points of capitalism, focussing on wages and population (labour) aspect of the free markets.

Analysis of all these semantic works implies that sustainable development could only take place by appropriate economic treatment for all factors of production. Modern nations endlessly strive to achieve the balance by setting up a dynamic legal framework for incorporating suitable checks and balances in the market economy with an endeavour to curtail crony capitalism and widespread disparities of income