Comparing Economic Theories of Smith, Malthus, and Ricardo - Free Paper Example

"Bankruptcy is perhaps the greatest and most humiliating calamity which can befall an innocent man. The greater part of men, therefore, are sufficiently careful to avoid it. Some, indeed, do not avoid it, as some do not avoid the gallows." A. Smith.

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The nature and causes of wealth in different countries or nations were his main areas of concern. He spent most of his adult life talking about the accumulation of capital, the growth of populations, the productivity of labor, and how all three correlate. He leaned more towards free trade and was strongly opposed to planned economics. In his theory of economic growth, his main aim was to come up with a comprehensive and objective means of measuring or quantifying national wealth (Adelman, 1961). He opined that wealth was created or generated from goods supply and availability to the conventional markets. Further, that a country's overall output was heavily reliant on capital accumulation, as well as labor efficiency, this concept formed the primary basis of his theory argument.

Economic growth is directly proportional to a country's working population through its offering of labor that is productive. Specifically, the agricultural sector and the manufacturing sector accounted for more productivity in any country. However, most of a country's productivity is often left undone by high government expenditures. The accumulation of capital helps in achieving a higher percentage of people working. There ought to be enough markets available to sustain or withstand the high levels of production.

In this regard, Smith's theory can best be summarized into three correlating aspects: an increase in the number of workers, an improvement in the efficiency of these workers, and the continuous increase and accumulation of capital. Of all the three, capital accumulation is the most crucial in Smith's theory of economic growth.

Thomas Malthus's Theory of Economic Growth

"If the population and means of subsistence had increased at the same rate, it is likely that man would never have emerged from the state of the savage." T. Malthus

The demographics witnessed in the 18th century pointed towards a direct relationship between population growth and agricultural and industrial revolutions (Adelman, 1961). They each rely on each other in the sense that increased agricultural produce helps sustain and increase the growth of the population; after that, this growth in the population produces an adequate labor force required to sustain the industrial revolutions.

However, Malthus was of the opinion that, indeed, the supply of food controls and determines population growth. Population growth is exponential and supersedes both the demand for labor and food supply. As such, the continuous and uncontrolled growth of the population ultimately results in poverty. He, therefore, held that population growth ought to be controlled by the supply of food.

Malthus's theory was triggered or motivated by the need to maintain good and decent living standards in England. Malthus believed that ultimately, the increase in the demand for labor would result in an increase in population growth. However, if this were not subject to control, it would barely be sustainable, and would thus result in poverty. While Smith felt that capitalists would channel their investments towards the greater good of society, Malthus felt that capitalists would only invest in productions that profited them personally, and not the community as a whole. As such, manufacturing, due to trade, would be prioritized at the expense of agriculture.

Consequently, there would be a decline in agricultural production as a result of inadequate investment (Adelman, 1961). Lower food production results in higher demand, thus an increase in food prices. With poverty settling in, the majority would not be able to afford or access food.

David Ricardo's Theory of Economic Growth

"For the general prosperity, there cannot be too much facility given to the conveyance and exchange of all kinds of property, as it is by such means that capital of every species is likely to find its way into the hands of those, who will best employ it in increasing the productions of the country." D. Ricardo.

Ricardo's theory of economic growth was centered on the distribution of income. He disagreed with the idea that agriculture was the sole sector with the ability to produce a net surplus. Instead, he felt that the economy could profit from all sectors, not just agriculture. Wages would not be regulated by the market, but instead, the need for subsistence.

He assumes that prices did not necessarily have to increase with rising wages. He justifies this assumption by claiming that prices do not depend on wages, and as such, aren't affected by the increase or decrease in profits. The only determinant of prices is the change in the value of money, i.e., the value of gold (Adelman, 1961). The change in the price of gold was dependent on its productivity. For instance, if the decrease in labor would still result in the same level of productivity in gold or an increase in its productivity, then the relative prices would reduce. To this extent, his theory was in agreement with that of Smith's. As such, Ricardo, too anticipated an increase in labor productivity in the long-term.

With regard to agriculture, Ricardo was in agreement with Malthus. He opined agriculture would ultimately witness growth in prices, and as such, wages. Consequently, increased agricultural production would result in the growth of the economy, and improved standards of living for the farmers, but a decline in marginal profits. Profit analysis is key in Ricardo's theory of economic growth.

I believe that of the three, Ricardo's theory carried more weight. His theory incorporates both Smith's market theory and Malthus's theory on diminishing returns. As such, his theory is more wholesome. His theory not only defended but advocated for the following three main aspects: tax reduction, food importation to avoid the use of land that was unproductive, and accumulation of capital, particularly in agriculture, to facilitate an increase in profits.

Short Essay

Malthus's theory of economic growth was centered on the population policy and pointed towards the upper class. To this extent, his theory was in agreement with Ricardo. In Thomas' concept of population, it is impossible for human beings to attain full well-being since the rapidly growing numbers of human beings will always supersede the supply of food or subsistence. Unless checked, the growing rate of the population would eventually be unsustainable.

On the issue of rent, Malthus believed that with the continuous rapid increase of population, people would be forced to utilize soils that were of inferior quality. The utilization of such unproductive oils would increase the amount of labor required for food production. Consequently, the prices of food would go up and generally become unaffordable. This result has a direct influence on how the landlords ultimately decide to handle their tenants. Ricardo opines that if society progresses naturally, laborers stay at equal subsistence levels, impacting negatively on the income received by capitalists (Adelman, 1961). It is only the owner of the land who grows in wealth without necessarily incurring any labor or risks.

With regard to profits, Ricardo observed that profits would continue to decline progressively. Eventually, society will become generally stagnant to the extent that no one will find it worthy of risking their capital to increase production due to the low profit margins. Malthus disagrees and insists that the law of wages demands that they are calculated while the food supply remains constant. Thus, profit margins ought to always increase, regardless.

These two economists are referred to as "pessimistic" in their approach to economic growth. Although they brought capitalism into their arguments, they did not delve deeper into it in an attempt to incorporate its nature as an integral system of the economy. Instead, their thought and ideas were more reserved and limited. They focused more on the agrarian economy, without necessarily making alterations to the changes in production. As such, the limited quantity and quality of productive soil impact negatively on the increasing costs of production. In their analysis, they both failed to factor in the changes in technology that would ultimately impact productivity in the agricultural and industrial sectors. They opened their eyes to the possibilities of international trade and foreign investments as a means of increasing capital but closed them to the crucial role technology would play in all that.

However, credit to their works and thoughts, limited as they were, they set the pace for Marxism and further analysis of capitalist accumulation.

References

Adelman, Irma. 1961. Theories of Economic Growth and Development. Stanford: Stanford University Press.