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A Brief History of Economics Essay

Through his use of dialectical materialism, Marx not only changed the history of economic thought, but found great illumination for himself regarding the bonds of human society. The concept that seems relatively simple in today’s complex economic world was utterly revolutionary in the time of Marx: people develop their ideas about the world (and thereby, their ideas for how society should be organized and stratified) based on the material aspects of their lives.

It was an elegant extension of basic Marxist theory: capitalism, according to Marx, is interested in offering naked materialism as a kind of booby prize to make up for the means of production being taken away from the people. If the people can no longer work for themselves and no longer work at perfecting their own craft as individuals, then, as Marx correctly deduced, people would require something to validate their work.

This became the center of capitalism, as Marx understood it: materialism exists as a kind of justification for capitalism, and since materialism has permeated our culture to such an extreme degree, eventually social orders began to revolve around it. Hence, what capitalism serves as the cause of what Marx saw as nothing less than ongoing class warfare. It is interesting to note that Marx believed a violent revolution on the part of the proletariat was not simply a possible method of changing things, but actually served as the only method of changing things.

This is because materialism was so embedded into class structures (which, in turn, was so embedded in power structures), and the only way for society to functionally survive was for it to become overturned completely. It is also interesting to note the ongoing effect that Marx has had on philosophic thought: materialism had previously been dislodged by Descartes and the famous declaration “I think, therefore I am;” as far as most people who pondered these things could conclude, thought preceded matter.

However, Marx not only brought materialism to the philosophic forefront—the then-controversial idea that material preceded thought—but illustrated the notion that the abstractions of materialism had been concretized by capitalism into purchasable goods. 2: Marx and the Secret Source of Profit Perhaps the most enduring notion of Marx’s is the so-called secret of the source of profit under a capitalistic society…though such is Marx’s legacy of intellectual thought, a great many people simply accept this notion as reality: the source of profit is the surplus value that an employer gains from laborers.

After all, the means of production have been taken from the people: skilled artisan cobblers have been replaced by factory line workers churning out shoe after shoe after shoe. The money saved by employing this assembly-line method of industrial production becomes pure profit for the employer. Interestingly, Marx tethered this to his own theories on circulating capital—that is, something that does not last, and is used up in the production of other goods and services, in direct opposition to fixed capital, which is traditionally held for over a year by a business or institution.

Marx astutely deduced that the distinction between these concepts is not only relative, but arbitrary: the idea that capital held for 365 days is circulating and that capital held for 366 days is fixed is absurd. However, it allows the proletariat to essentially gloss over their own necessity to the entire institution of capitalism: they are led to believe that society is held up by the fixed capital of major investors and their long-term investments.

In reality, society is held aloft by the ongoing purchases of the common man (and woman): their disposable income is burned off to provide them a sense that capitalism is worth it…it turn, their disposable income is used to make the rich richer, as the cliche goes, all the way up the capitalist pyramid. In Marx’s view, this is one of many ways that those in power forestall the seemingly unavoidable class war that he advocates: those with power—the purchasing power of the common man—are convinced they have none, and are bought off with trinkets.

It is interesting to note that this echoes the master/slave morality inversion of Nietzsche. 3: Marginalists and the Economy In the evolution of economic theory, the impact of marginalism cannot be overstated. Once one had accepted the blunt realities of Marx—specifically, that society was organized based on the perceived value of items—the logical question remained: how does one quantify the value of an item?

Marginalism illustrated the diminishing returns on the marginal utility of resold products, which dramatically impacted analysis of capitalist economy, the focus of economic analysis, and theories of value and distribution. Regarding the analysis of capitalist economy, marginalism helped solidify the supply and demand notion of economics as that of mainstream economic thought, as opposed to the labor theory of value espoused by Karl Marx.

To put it mildly, this has had ongoing economic effects for the last century and a half. The focus of economic analysis shifted accordingly, as marginalism interacted with price theory: this allowed economics to project demand curves utilizing marginal rates of substitution as a means of determining not only when, but why a seller is willing to relinquish a product for a particular price. Perhaps one of the most lasting effects of marginalism on economic thought has been its effect on theories of value and distribution.

With the previous measures in place, economists (as well as common people) now had a more-or-less accurate measure of determining the value of any given product in any given social context. Of course, this also effects the ongoing distribution of certain products to certain demographics in order to maximize profitability. Interestingly, this is one of the chief criticisms of marginalism as well: that it is a vague pseudoscience whose intent is to maintain not only the economic status quo, but the appearance of the status quo.

It is no surprise, then, that Marxists continue to grapple with marginalist theory: they see it as a means of keeping the proletariat in check, and preventing any uprisings from them. 4: Thorstein Veblen: Survival of the Fattest Thorstein Veblen, for better or worse, specialized in bringing the human element into economic theory. Specifically, he theorized that the institution of the leisure class was a parasite feeding upon America: upon the backs of workers who are actually productive are a class who seek only profit and produce nothing but waste.

He essentially created and popularized the notion of conspicuous consumption as the epitome of this theory: that wealthy individuals spend large amounts of money on ostentatious goods whose sole benefit is to publicly display their wealth to the world. Unfortunately, this has become an integral part of the economy: although an engineer might weep at the man spending over a hundred thousand dollars for a car, the American economy would be crippled if conspicuous consumption vanished overnight.

Hence, the parasite metaphor: conspicuous consumption and naked profit helps the wealthy to bloat themselves on the backs of the poor until the entire enterprise inevitably crumbles under its own weight. Veblen perceived quite clearly that human notions about the world are social constructs created by individuals, and as time went on, those notions would change, necessitating a change in economic thought as well. He makes frequent comparisons to evolution to further this end: idle curiosity spurs innovation, innovation spurs conflict between the old guard and the innovators, and an economic Darwinism is born.

The advent of industry and technological revolutions merely expanded his original point: the parasitic relationship continued unabated, as the innovations of the productive engineer class were inevitably utilized as means of conspicuous consumption and waste on the part of the leisure class. Planes are developed as a result of idle curiosity, for instance, but it is the leisure class that necessitates the invention of first class as a way of displaying their own status in the social hierarchy.

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