History in Economic Thought

 Karl Marx

Karl Heinrich Marx was born on May 5, 1818 in Trier, kingdom of Prussia. He was a

German Philosopher, economist, sociologist, historian, journalist, and revolutionary

socialist. He followed his father's footsteps, the reason why he pursued a secular education.

He enrolled in University of Bonn as a law student and after a year he transferred in

University of Berlin, where he become interested in Philosophical views. He joined the

Hegelion's group. After earning his Doctorate degree at University of Jena, he become editor

of the Rheinische Zeitung. He married Jenny Von West Phalen, then they moved to Paris.

During his first few months in Paris, Marx became a communist and set down his views in a

series of writings known as the economic and philosophical manuscripts. Then he met

Engels, and they work for a series of books. Then he was exiled again and settled in Brussels,

with his family until 1848.In Brussels Marx and Engels produced two most important works

the German ideology and the communist manifesto. The revolution spread. Marx and

Engels left Brussels ang headed to cologne. He returned to Paris. Then moved to London in

1849, where his family reduced to poverty. He continued writing and formulating theories,

He turned his attention to economics. He spent 60 hours per week in British museum, and

produced "capital" in 1867. Marx wife died in 1881, his daughter because of starvation a

year later, and Marx himself died on march 14, 1883.

Contribution of Karl Marx includes Capital, Base and Superstructure, The

Communist Manifesto, Socialism, Communism, Class, Class conflict, The German Ideology,

Alienation, and Surplus value.

motivating force of capitalism is in the exploitation of labor, whose unpaid work is the

ultimate source of profit and surplus value. Base and superstructure are two concepts in

Karl Marx's view of human society. The base is the basic way a society organizes the

production of goods. It includes employer-employee work conditions, the technical division

of labor, and property relations, which people enter into to produce the necessities and

amenities of life. The Communist Manifesto (Das Kommunistische Manifest), originally

titled Manifesto of the Communist Party (German: Manifest der Kommunistischen Partei) is

a short 1848 publication written by the political theorists Karl Marx and Freidrich Engels. It

has since been recognized as one of the world's most influential political manuscripts.

Socialism is an economic system characterized by social ownership and cooperative

management of the means of production, and a political philosophy advocating such a

system. "Social ownership" may refer to cooperative enterprises, common ownership, direct

public ownership or autonomous state enterprises, Communism (from Latin communis -

common, universal) is a revolutionary socialist movement to create a classless, moneyless,

and stateless social order structured upon common ownership of the means of production,

as well as a social, political and economic ideology that aims at the establishment of this

social order. world" (socialist states ruled by communist parties) and the "western world"

(countries with capitalist economies). He defined class by the ownership of property. Such

ownership vests a person with the power to exclude others from the property and to use it

for personal purposes. In relation to property there are three great classes of society:

As Marx saw the development of class conflict, the struggle between classes was

initially confined to individual factories. Karl Marx's famous "The German Ideology" opens
with a full-front offensive on the Hegelian tradition on 19th century idealist German

philosophers. The Hegelian philosophers focused on consciousness and abstract ideas,

holding that they have independent existence which shapes social reality (hence the term

"idealist philosophy"). According to this view, a change in social reality can be brought about

through a change in the manner this reality is perceived. Alienation (Entfremdung) is the

systemic result of living in a socially stratified society, because being a mechanistic part of a

social class alienates a person from his and her humanity. The theoretic basis of alienation

within the Capitalist mode of dis that the worker invariably loses the ability to determine his

or her life and destiny, when deprived of the right to think (conceive) of himself as the

director of his actions; to determine the character of said actions; to define his relationship

with other people; and to own the things and use the value of the goods and services,

produced with his labor. Surplus value is a concept used famously by Karl Marx in his

critique of political economy. Although Marx did not himself invent the term, he developed

the concept. It refers roughly to the new value created by workers in excess of their own

labor-cost, a value which Marx said was appropriated by the capitalist as gross profit, and

which is the basis of capital accumulation.

“The production of too many useful things results in too many useless people.”-Karl Marx
 Alfred Marshall

Alfred Marshall was born in Bermondsey, a London suburb, on 26 July 1842. He died

at Balliol Croft, his Cambridge home of many years, on 13 July 1924 at the age of 81.

Professor of Political Economy at the University of Cambridge from 1885 to 1908, he was

the founder of the Cambridge School of Economics which rose to great eminence in the

1920s and 1930s: A.C. Pigou and J.M. Keynes, the most important figures in this

development, were among his pupils. Marshall's magnum opus, the Principles of Economics

(Marshall, 1890a) was published in 1890 and went through eight editions in his lifetime. It

was the most influential treatise of its era and was for many years the Bible of British

economics, introducing many still-familiar concepts.

The Father of Neoclassical Economics (along with Leon Walras) the Originator of the

Principles of Microeconomics Wrote "The Principles of Economics" (1890), The Stereotypical

Economists ("It depends"), Marshall is a very careful thinker. His thoughts on marginal

analysis pre-date Stanley Jevons and Carl Menger, yet his publication of this idea was twenty

years after the other two rushed onto the economics landscape. Perhaps influenced, to

some extent, by Mill's hasty conclusion to value theory. Marshall rarely attempted a

statement or took a position without expressing countless qualifications, exceptions, and

footnotes. He showed himself to be an astute mathematician-he studied math at St. John's

College, Cambridge-but limited his quantitative. expressions so that he might appeal to the

layman. Published "Economics of Industry" with his wife Mary Paley. In 50 years of writing

he produced 82 publications including: 9 editions of Principle of Economics, 5 editions of

Industry and Trade, 2 editions of The Economics of Industry Money, Credit and Commerce

appearing in 1923 (year before his death) only appeared in one edition.
 Contribution of Alfred Marshall includes principles of economics, theory of demand,

theory of production, cost of production and supply, Marshall on supply, stable and

unstable equilibrium.

The aim of the Principles is to study the economic aspects of human behavior in

order to derive the laws governing the functioning of the economic system. The theory of

demand includes utility and demand, demand schedules and curves, price elasticity of

demand, in the theory of production Marshall conceived different periods of production

includes Market period, short run, long run, and secular period. cost of production and

supply includes the two components of total cost of the firm the prime cost and the

supplementary cost. Marshall on supply is the difference between the total expenditure’s

consumers would be willing to pay and what they actually pay. Most important contribution

to theory of supply was his concept of the time period, particularly the short run and the

long run. stable and unstable equilibrium. Stable equilibrium is achieved when any

displacement from equilibrium will produce forces returning the market to Equilibrium,

Unstable equilibrium is possible when supply curve in downward sloping. If price or quantity

attain equilibrium values, they will remain there, by if system is disturbed it will not return

to these equilibrium values.

“Economics is not a body of concrete truths, but an "engine for the discover of

concrete truth."- Alfred Marshall

John Maynard Keynes was born in 1883 in Cambridge, England, Son of John Neville

Keynes, Neville was a professor of Economics and Logic at Cambridge Univ., and wrote on

Economic Methodology. Won a scholarship to Eton, Boy Genius Won prizes for his work in

the classics, mathematics, history, English essays, wrote papers on contemporary social

problems, participated in crew and debate, acted, read everything, Became an expert in

medieval Latin poetry. Part of Eton's social elite, Won a scholarship to King's College,

Cambridge

President of the Student Union, President of the University Liberal Club. Rowed,

studied philosophy, played bridge, visited art galleries, collected rare books, went to the

theatre Became a member of the "Apostles", a secret and highly exclusive Cambridge

intellectual society Became a member of the literary set called "the Bloomsbury Group."

Studied economics for perhaps 1 year, but did poorly on his exams. Took a civil service exam

and took a job at the India Office for 2 years. 1908, his father managed to get him a job as a

lecturer at King's College. Later he became a Fellow. 1911, he became editor of the

Economic Journal. Worked at the Treasury during WWI.

1921, he published A Treatise on Probability. This was his dissertation. It won him a

fellowship at King's College, Cambridge. Marries Lydia Lopokova. Keynes wrote the

Economic Consequences of the Peace (1919), regarding reparation payments Best Seller,

made him a public celebrity 1923, Tract on Monetary Reform (against returning to the pre-

war gold standard), Economic Consequences of Mr. Churchill (1925, warned of depression)

1930, Treatise On Money Makes millions in the stock market, commodity, and forex
markets. 1936, General Theory of Employment, Interest and Money 1937, he has a serious

heart attack Died in 1946.

Contribution of John Maynard Keynes includes Keynesian economics, Business

cycle During great depression, Intro to macro-economic theory, Aggregate Supply,

Consumption functions, Income -expenditure Model, and the general theory.

Keynesian economics Based on the idea of the need for state regulation of the

economy. No more self-adjustments, For the prosperity of the economy: All have to spend

as much money

as possible; The state should stimulate aggregate demand growth even. by the budget

deficit, debt and unsecured issue of money. Business cycle During great depression He

outlined the limitations a of Microeconomics theory. Due to unemployment and poverty,

the demand for goods and services dropped. Many workers were unwilling to accept lower

wages. Intro to macro-economic theory, High unemployment rate greatly influenced the

development of macroeconomics Challenged the established neoclassical economics

Introduced important concepts such as: Consumption, Multiplier, Marginal efficiency of

capital, Liquidity preference. Government’s responsibility is to Reach and maintain full

employment and Regulate markets and free trade.

Aggregate Supply there are three ranges of aggregate Supply this includes the

Keynesian range, Intermediate range and the Classical range. Consumption functions Shows

the relationship between real disposable income and consumer spending, the latter variable

being what Keynes considered the most important determinant of short-term demand in an

economy.
Income -expenditure Model Explains fluctuations in production of goods and services and

spending. The model basically states that we produce as many goods as will sell on the

market and fluctuations in production and expenditure are tied to keep an economy stable.

the general theory Microeconomics and macroeconomics do not operate on the same

basis. One cannot assume that what is true for the economic agent at the level of the

individual consumer or firm is true in aggregate. This amounts to the fallacy of composition.

the Keynesian theory didn't work because Government spend too much money on

post-WWII events. (Examples: Vietnam war, sending the first man to the moon) The

Keynesian solution stopped working, Unemployment became worst, it created Inflation. In

conclusion Keynesian theories work best on economics catastrophes.

"The social object of skilled investment should be to defeat the dark forces of time and

ignorance which envelope our future."- John Maynard Keynes