SOSIOLOGI ECONOMIC

CHAPTER 1

Teenth and eighteenth centuries. these ideas do not form a coherent economic theory, but a conglomeration of value judgment, policy recommendation , and assertions about thenature of economic life. the heterogeneity of mercantilism traces in part to the diversity of persons who espoused it-philosophers  head of state , legislators , merchants , and pamphleteers from this array we may extract a few central themes.

The first concerns the mercantilists view of wealth. The wealth of a country was held to be equal to the amount of money with the possessed by that country. Moreover, mercantilists identified money with the precious metals, gold and silver. Since they conceived the total stock of wealth in the world as more or less stationary, they felt that whatever one country gained in wealth, another country lost. This contrasts with the view of modern economicsts that foreign trade often benefits both countries, even though one may run a deficit for a time. Hence the mercantilists stressed either accumulating precious metals outright or maintaining a balance of axports over imports so that precious metals would flow to the home country.

The second theme concerns the mercantilists view of power and its relation to welth. One way to increase national power many felt, was to increase national wealth. As taylor observed In the mercantilists epoch … the main over all purpose of each countrys government, in its effort to stimulate and direct or guade the countrys commerce and handicarf industries, was to foster growth of national wealth mainly for the sake of each nations policy was for growth of the relative wealth and power of the nation state as such and as compared with rival, foreign nation states

Mercantilists assumed that wealth works in the service of power and that the objectives of increasing wealth and increasing power are in essential harmony, indeed almost indistinguishable from one another.

With respect to pratical policy as well, mercatilists saw an intimate association between power and wealth. The state is the locus of power. To stimulate economic growth and the increase of wealth, the state should use this power to regulate industry and trade. It should give political and economics support by entablishing state monopolies, for in state to industries that manufacture goods for export, it should restrict imports by taxation or prohibition, it should coloniez in order both to acquired supplies of gold and silver and to secure raw materials to be worked up for export. By increasing its wealth, the state was also increasing its power.

From the standpoint of the status of economic and political variables, the mercantilists had an undifferentiated theory. By increasing wealth a state increasing its power moreover, it uses its power to increase wealth. If properly controlled, the economic and political systems cannot work at cross-purposes, they are complementary to one another.

Adam smith : The Weakening of the State’s Economis Control

Adam Smith (1723-1790) was the foremost critic of the mercantilist doctrines. From the multi-sided polemic contained in his famous wealth of nation, we may extract the following attacks on and reformulations of the basic themes of mercantilism.

With respect to wealth, smith rejected the mercantilists emphasis on money or treasure. The wealth of a nation, he argued, is found in its productive base, or its power to produce “the necessaries, comforts and conveniences of life”. Money is a medium of exchange that facilitates the allocation of these goods. The level of production depends in turn on the division of labor. The more highly specialization of labor depends in its turn on the size of the markets for the products of labor and on the availability of capital.

Consistent with this emphasis, smith denied the importance of accumulating a treasure of precious metals. Rather, to increase wealth it is necessary to develop the widest possible markets for distributing products. This reasoninglies behind his argument for maximum international trade to be attained by freeing it from tariffs and other restrictions.

Smith also revised the mercantilists ideas regarding the relations between wealth and power. While not denying that a nation’s power depends in part on its wealth, he attacked the notion that the best way to increase wealth is through direct political action. Goverments should not establish monopolies, fix tariffs, or show favoritism to certain industries. They should instead allow the power to make economic decisions to reside in the hands of the economis agents themselves. In term of power, the famous doctrine of laissez faire meant that the state should not regulate but should give business and commercial agents the power to regulate themselves. Strictly speaking, laissez faire called for a reallocation of power in society, not simply an absence of power.

Such decentralization does not, however, solve all the political problems of a society. What guarantees that individual economic agents will not misuse their power, gain control of the market, and fix prices ? smith handled this problem by two devices.

1.  He built into his theory an assumption that is a core element of the notion of the perfectly competitive market-the assumption that no individual firm has (or should have) the power to influence price or total output of an industry. No economic agent can at the same time be a political agent. Smith realized that in practice businessmen and others deliberately regulate prices and output, persons “ in the same trade seldom meet together”. He said, “but the conversation ends in a conspiracy against the public”. But the felt these agreements were unnatural and illegitimate. If the economiy were free, businessmen would devote their capital to the most productive enterprises, and the shares of income would find their natural level in the market. The economy regulate itself.

2.  He assumed that some general political constraints are necessary to prevent businessmen from pursuing. Their self-interest in an unbridled way. For instance, the state should provide laws to guarantee that sales and contracts are honored, the state should not grant favors to special groups in the economy. Thus even under laissez-faire assumptions, the state is not completely passive. It provides a moral, legal, and institutional setting that encourages business in general but not particular business enterprises.

Karl Marx : The State as Captive of the Bourgeoisie

   The thought of marx (1818-1814) is extremely complex, in part because he attempted to synthesize so many lines of intellectual influence that converged on him. Here we can give only the barest sketch of his view of economics and society, with special reference to his assertions about political forces.

  According to marx, every society, whatever its stage of historical development, rest on an economic foundation. Marx called this the “mode of production” of  commodities. The mode of production in turn has two components. The firs is “he forces of production,” or the physical and technological arrangement of economics activity. The second is “the social relations of production,” or  the indispensable human attachments that people must from with one another in carrying on this economic activity.

  But society is composed of more than its economic structure. Resting on it is what Marx called the “superstructure,” or that complex of legal, political, religious, aesthetic, and other institutions. That his reasoning rests on certain psychological and social as well as economic assumptions. As Hansen summarized it :

  Back of the consumption schedules is the psychological propensity to consume, back of the marginal efficiency schedule is the psychological expectation of future yields from capital assets, and back of the liquidity schedule is the psychological attitude to liquidity (expectations with respect to future interest rates). In addition to these … variables, rooted in behavior patterns and expectations, there is the quantity of money determined by the action of the central bank-an instituonal behavior pattern.

  Finally, what place did Keynes giva the political dimension in his theory ? his concern appears primarily in his discussion of public policy. It is possible, Keynes argued, for the government to influence the level of national income and employment by manipulating its ingredients-consumption, savings, investment-and their determinants. Thus, in the role of monetary policy, the government varies the interest rate and the stock of money, influencing those variables that impinge on the marginal efficiency of capital and investment. By fiscal policy the government itself spends and investment. A related set of policies affects the distribution of income-taxation, welfare measure, subsidies, and the like. If such policies make for a more nearly equal distribution of income (as graduated tax schedules do), this will increase consumption, because of the principle that those less absolute income spend larger proportion of it.

  Such governmental practice show that according to Keynes, the strictly economic aspects of the system (income, price, consumption, investment) are intricately tied to political variables (taxation policy, defense policy, welfare policy). We cannot, especially in these days of  big government, understand the workings of the economy without simultaneously knowing much about public policy. 

Conclusion 

For the economic thinkers just examined, we may observe a kind of back-and-forth movement with respect to the relations between the economic and political dimensions. For the mercantilists the purposes of the economy and the polity are nearly indistinguishable, an increase in wealth means an increase in power, and is to be used directly to increase wealth. Smith scrapped this notion of an undifferentiated economy and the polity. The state and the economy should pursue their respective as independently from one another as possible. For the economy, at least, its maximum growth will occur under conditions of free competition unfettered by political intervention.

Marx, while incorporating many features of classical economic thought, revised the classical notions on the relations between the economic and political dimensions. Insofar as he saw the purposes of the economy and polity as intimately associated, he looked back toward the mercantilists. He differed from them, however, insofar as he regarded  the polity as subordinated to economic considerationsm furthermore, he limited to role of the state to buttressing the class relations that arose from the conditions of production. Keynes again saw more autonomy than Marx in the relations between polity and economy. For him the political authority can influence the economy. But the saw this influence operating not so much through the direct exercise of  political power as  through the manipulation of key economic variables and the unfolding of the economic consequences of this manipulation.