Value and Distribution in Economic Theories of Modern Capitalism
Essay Question: Explain how value and distribution stand in relation to each other in Classical Economics and in Marx. Then confront the Classical view of the links, if any, between value and distribution with Wicksell’s capital theory and explain the common element between the Classics, Marx, and Wicksell.
Various economists, historians, and political economists have had varying perceptions in analysis of capitalism. Discrepancies in their explanation have been influenced by the fact that they viewed capitalism from different points of view inspired by the interest to understand the concept of capitalism in general. Classical economics refers to a school of economics that was developed in 18th century by Adam smith. It was at this time when the world underwent economic revolutions from feudal to a capitalist economist. Marx and smith developed economic policies that would meet the needs of consumers and producers fairly. In this case they established a relationship between value and distribution. It implies that Marx and Smith agreed at sometimes in their economic theories. At different historical times Classical, Marx, and Wicksell expressed classical view of the links between value and distribution and the analysis of these topics leads to comparison and contrast of Karl Marx’s, Wicksell, and Adam Smith`s economic theories.
The theory of value and distribution currently undermines the dominant theory that explains distribution and relative prices through equilibrium between demand and supply during the process of production. Classical economists argue that free markets have the ability to control or regulate themselves when they are independent of any kind of intervention. In this case, classical economists recognize the fact that markets will move towards their natural equilibrium while not depending on any outside intervention. According to Marx, value and distribution during production are anchored based on society’s value and organization. In this case, he recognizes that the working classes will come to power globally with a view of promoting and transforming the society’s development. Additionally, in terms of the use of value of commodities in relation to capital and distribution, capital is sourced from purchasing commodities with the aim of coming up with new commodities that possess a high exchange value than the overall sum of original values.
Marx also recognizes labor as a commodity; he argues that a precise exchange value of labor power must be lower when compared to the value that it produces to the capitalist. Thus, according to Karl Max the value of item is derived from labor used to produce or manufacture it but not from the ability to sustain human needs. Marx added that the capitalist were drawing in profit while paying for the workers. The amount paid could not compensate hard labor and long hours that the laborer has dedicated towards the task. Therefore, according to Max workers are the one who create economic value. Marx brought forward that the value of the commodity should be determined by the amount of labor geared towards its production. Thus, for capitalist, Marx insists that laborers/workers do not receive fair/fully compensation.
Smith was critical in way that he also realized the labor theory of value; he did this when he was analyzing the working of the free enterprise. It was a great coincidence that Smith linked the labor theory to theory of distribution. He associated goods produced for export with the opportunity cost of production. He was viewing export goods as cost in terms of other goods that have been fore gone. In this case, he was supporting the idea that the value of goods exported is not equivalent to the income realized. He also emphasized that labor is a vital factor of production and cannot be compensated with what the country was receiving from their export. He emphasized that with enough labor, a country could produce almost everything in a more efficient way and therefore, it does not have to rely on other countries. Thus, Smith asserted that the value of labor tends to be proportional to the commodities produced. Therefore, we cannot separate distribution and value of the commodity.
Knut Wicksell, in turn, sees the theory of value and distribution from the perspective of the rate of interest as a reward for waiting. Wicksell was keen to recognize that there was a close relationship between various factors of production such as capital, labor, and land, as well as their rate of remuneration. While Wicksell was analyzing the economics of value and distribution, He endeavored in explaining the nature of capital and interest. He identified the connection between the theories of value and capital. Additionally, he looked into the role of capital in production, its valuation and the social distribution of income. Thus, he realized that the value of capital and its remuneration are dynamic in the capitalistic framework. Therefore, according to Wicksell the factors of production such land, capital, labor and their rewards are dynamic. Thus, value and distribution cannot be perfectly matched.
There are several common elements that can be pointed out from the theories explained in Marxist terms, Classic terms, and by Wicksell. All the three theories have complied with the rule of capitalism that requires production to lead to realization or accumulation of profits. Classic economists explain that capitalists must ensure that they make profit from the sale of new commodities throughout the production process. This meant that one had change from his previous perspective. His theoretical perspective was no more. His previous concept of value that was only limited to material object was extended to untouchable services such as trouble and toil of labor. He acknowledged that labor was not the only factor that should be used to measure value of the commodity. He realized that other factors of production such as land, capital, and machinery should also be considered. Furthermore, capitalist must make profit after selling a item, through this he realized that the value and distribution of the commodity takes into account all factors of production. Through this Smith theory was in agreement with that of Marx and Wicksell.
Similarly, Marx has also recognized the fact that the value used on labor during the process of production must not exceed value realized by the capitalist. In this case there is a similarity between what Mark acknowledges and the conclusion of Smith. Actually, Marx attention was focused on the relationship between capital and value. He realized that all objects of utility must have value. Therefore, he recognized that all factors of production have utility. And the utility identified has a cost. From his research he concluded that all objects of utility have value and therefore, the value of non-reproducibility and rare stuffs can be determined by their demand. Though Marx recognized labor as import factor of production that have utility, he criticized valuing by the amount of labor geared towards its achievement. This is an incidence of similarity between Smith and Marx since the two agree that labor should not be used to value a commodity. Additionally, they acknowledge other factors of production should be considered while valuing goods and services. Fundamentally, Marx also acknowledges that the cost of production should not exceed the value realized. Therefore, certain amount of profit must be realized during the sale of a commodity.
While Wicksell explained capitalism through interest rate, he wanted to recognize the fact that capitalist had to derive value from lending loans to others. The value realized by the loan lenders is actually the profit. Wicksell at this early stage had acknowledged that must be included in the valuation of the commodity. Knut is famously known as the general equilibrium economist, this is because he foresaw the problems associated with valuing a commodity with its labor. Wicksell portrays significant similarity with Smith and Marx. Knut was regarding capital as a factor of production that was completely different from land and labor. He advised that the value of land can be achieved by calculating it in non-technical unit values. This resulted into significant serious distribution consequences. This affirmed that the value and distribution of a product does not only depend on labor but also on other factors of production. At this junction, it is evident that the three economists, Karl Marx, Adam Smith, and Knot Wecksell had landed into a common conclusion that the value of the commodity does not depend on the value of labor alone.
In all the three theories, the relationship between demand and supply has clearly been identified. The concept commonly known as equilibrium among economists has been used in all three theories and it tries to explain that capitalists must maintain a balance between demand and distribution of commodities to consumers. It can be inferred that perception of capitalism has significantly changed over time. The concept of capitalism has become independent of political perspectives, views, and opinions in the modern society. Capitalism refers to an economic system whereby industries, trade, companies, businesses, and other means of production are greatly defined by private ownership. Capitalism is entirely built on the basis of profit accumulation. However, capitalism may also envision nonprofit organizations. Key concepts of capitalisms are competition, private property ownership, profit and capital accumulation, and wage labor.
In conclusion, Smith and Marx had different opinions on the labor theory of value. Mark was arguing that labor was value. Additionally, he argued that laborer’s welfare was a great consideration and should be looked into since laborers were the most valuable assets in production. Ironically, Smith was against the labor theory of value. He opts for the cost of production theory where wages, profit and rent were highly valued. This is a clear indication of a rift in their views on the labor theory of value. Marx was advocating for it while Smith was against it. Later the three economists Smith, Marx, and Wicksell had points of similarity. The three acknowledge that while valuing a commodity one should take into account the value of all factors of production. The three also agrees that all factors of production have utility ant therefore, it is not in order to value a commodity using labor only. They also agreed that the distribution and value of most commodities, for example, demand and supply should have an equilibrium point. These economists played a great role of structuring the current economy that is running the world. Thus, the value and demand of the commodity must obey the demand and supply curve. The value and distribution of the same must have an equilibrium point and labor value should not be used to value a commodity. Other factors of production should be considered since they possess value. Moreover, in capitalist profit is also considered while valuing a commodity.