Essay Example on Keynesian Economics and Marx's Theories of Value

Introduction

Keynesian economics refers to the arguments of the English economists. M. Keynes and his followers. Keynes argued in favor of government involvement to counter the inefficiencies of private businesses and the weaknesses of the free market. According to him, the intervention through policy was necessary to regulate the negative impact of free economic agents. He anchored his propositions on the failure of the free market economics to find a solution for the great depression. J. M. Keynes played an essential role in developing the theory of mixed economies and the control of international financial systems through his work in The General Theory of Employment, Interest and Money, and his role in the Breton Woods conference that gave rise to the World Bank and the International Monetary Fund. Precisely, he advocated for government involvement through fiscal and monetary policies to stimulate economies and limit the negative influence of the private sector.

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The classical theory of economics dictated that free agents working for their personal needs would force the economy towards full employment. They argued that the through market forces of demand and supply, government involvement was unnecessary. Hence, Keynes opposed classical theories by introducing the necessity of intervention to regulate private actions. He targeted the arguments that linked output and income from production and those that linked the cost of production and demand through sales. Keynes tried to establish the link between consumption and production, and savings and investment. To do so, he developed the economic theory based on aggregate demand and aggregate supply to indicate their role in determining the level of output and employment. Besides, classical theorists opined that price adjustments affected production and tended towards full-employment. However, Keynes argued that the two significant factors, supply, and demand, relied on other macroeconomic factors, including labor and money. Hence, government intervention was necessary to manage the environment through monetary policies.

Employment

Keynes focused on the role of the labor market in the economy and established that an increase in supply would lead to a reduction in wages. He argued that during the depression, then the impact of the worker's rewards was different from the classical theorists' perspectives. Keynes' theory focused on the role of nominal rather than real wages (Tily, 2016). Classical economists argued that depression resulted from the rigidity of the labor market and that flexibility was required to manage the situation. They opined that abolishing minimum wages and trade unions were essential for creating the desired flexibility. However, Keynes argued that these factors were insufficient because workers would resist any actions to reduce their earnings with or without them. He opined that reducing the general prices would force workers o accept a reduction in wages.

Interest Rates

Keynes opposed excessive savings and argued that saving beyond the expected investment was detrimental to the economy. In his view, doing so reduced customer demands and encouraged recession leading to an economic decline. Classical economists argued that savings and investments are the primary determinants of interest rates. However, Keynes opposed these views and introduced the complexity of interest rates through the elasticity of demand and supply. Besides, he highlighted the fact that investment is based on future expectation while saving is a current action. Hence, direct substitution between the two factors is unlikely. Mainly, he argued that savings involve spending most of the disposable income and reducing demand for products (Tily, 2016). Hence, it reduces the incentive for production as firms experience the general glut, an increase in unsold outputs. His argument implies that for savings to become an incentive for growth, it must have a matching investment strive that promotes production. Keynes also linked the theory of money with interest rates.

Government Intervention

Due to the inefficiencies of free market economics, the use of fiscal and monetary policies becomes inevitable. Classical economists strived to balance government expenditure, but Keynes argued that the government should proactively attempt to resolve short-term economic problems. Through stimulation of the market, the government can encourage production instead of waiting for the forces of demand and supply to regulate it. Keynes also supported the multiplier effect in the economy where expenditure increases consumption and encourages production. Similarly, mainstream economists strive to eliminate involuntary unemployment of resources resulting from the inefficiencies of the free market through stabilization policies

(Bludnik, 2015). However, mainstream economists include real economic problems and assumptions of rationality, maximization, and asymmetry of information in mathematical models.

Conclusion

J. M. Keynes was an English economist who advocated for government involvement and reduction of the role of free agents in the economy. During the great recession, he supported the use of fiscal and monetary policies to solve short-term issues that would create a better business environment. However, Keynes contradicted the arguments of classical economists, which promoted the role of free agents and their contribution towards full employment. Instead, he focused on aggregate demand and output and the factors that affected them. Mainly, Keynes addressed the role of labor, money, and interest rates in production and full employment. He also opposed the need for excessive savings stated that it was detrimental to economic growth.

References

Bludnik, Izabela. (2015). Keynesianism: Mainstream economics or heterodox economics?

Tily, G., (2016). Keynes's General Theory, the Rate of Interest, and Keynesian economics. Springer.

Marx's Theories of Value and Exploitation

Karl Marx is one of the most prominent critics of capitalism. Through the labor theory of value, exploitation occurs when capitalists force laborers to work longer than necessary for their subsistence. The appropriation of the excess cost of production is essential for the sustenance of capitalism but leads to the over-utilization of the working class. In other words, capitalists reinvest surplus rent, profits to expand product, and requires the laborers to work longer to produce more profit. This situation results in a constant cycle of exploitation under this market system. Hence, exploitation is inevitable under capitalism as the owners of the factors of production continuously strive to increase their profits. Therefore, socialism will eventually replace the system.

Labor

Labor refers to the services and contribution of the working class. Under capitalism, the workforce is necessary for the production of goods and services. The other essential factor of production in this system is capital. Marx's theory of value proposes that labor is the only source of value, and without it, production would stall. He contravenes Smith and Ricardo's views of value and anchors his theory purely on the role of the workers. According to David Ricardo, the cost of labor is the direct or indirect input required for the production of a unit of output concerning the unit of the workforce. Marx argued that profitability is only possible if there is a production input that is a source of value. He introduced the concept of labor power, which is the capacity to work. Hence, according to Marx, the cost of a commodity is the equivalent of the amount of workforce used to produce it (Laibman, 2016). Under capitalism, the concept of labor is necessary for production, and its power is essential for productivity. Hence, capitalists strive to induce the workers to increase their labor capacity to work to maximize profit.

Exploitation

The laborer sells his ability to work to the capitalist overtime and requires certain commodities to restore the labor power used in production. Exploitation occurs when capitalists derive a profit from the laborers' efforts in production because they have provided surplus labor value over what is socially necessary. Marx argued that workers should only generate the amount of labor power that is equivalent to or less than the number of hours they have contributed to the employer. Hence, if the capitalist extracts more than the labor time socially necessary for production, exploitation happens. However, capital owners must strive to maximize profits from their investments. As a result, they must exploit the workers to achieve value for their laboring hours and generate surplus income. Exploitation occurs because the workers involuntarily have to work for the capitalists because they do not have access to the factors of production (Laibman, 2016). Hence, the laborers rely on the labor they provide for their subsistence. Under capitalism, disguised exploitation occurs under contractual agreements where workers seem to work for their benefits. However, their decision to offer their labor power in exchange of income is neither voluntary nor for their interests. Workers have no alternative but to provide work to the owners of capital, who generate profits through exploitation. The capitalists appropriate some of the value created through labor for their selfish gain.

Under this system, labor is an input of production, and it is priced as a commodity. Hence, its price is subject to the cost of the factors that produce it. Therefore, exploitation refers to the inequality between the cost of producing labor power and the value of the commodity that it provides. Since Marx considers it the only factor of production with the ability to reproduce value beyond its necessary production cost, working capacity is the most critical input under capitalism. Hence, without it, capitalists would not generate profit. The owners of capital strive to restrain the factors of production from forcing the laborers to sell their labor power for their subsistence. In other words, exploitation occurs due to the private ownership of the elements of production (Yoshihara, 2017). As the laborers strive to generate income, the capitalists exploit their input by appropriating their value.

Criticism of Capitalism

The labor theory of value is necessary for the critique of capitalism as it highlights the inevitable situation of the market system. Laborers are essential for the sustenance of production, but the owners of capital exploit their availability for selfish gain. According to Marx, labor exploitation is inevitable under capitalism because the surplus value of labor is the necessary input of profit generation. In other words, for capitalists to maximize profit, they must appropriate the surplus power that their laborers generate. Hence, capitalism is an unfair system that relies on the oppression of the have-nots for the benefits of the haves. For any market system that has class differences, this situation is bound to happen because one class relies on the other for subsistence. In this case, the laborers rely on the capitalists for living and risk exploitation.

Conclusion

Marx's theory of labor value dictates that labor is the most significant factor of production and that the laborer's involvement in the system is involuntary. The workers strive to generate income from by selling their labor power while the capitalists take advantage of this vulnerability to appropriate surplus value. As a result, exploitation occurs because the system unfairly allocates resources to the owners of capital. Marx criticized capitalism based on this argument and opined that under it, oppression I inevitable. The capitalists must appropriate the surplus value of labor to generate profit. Their m...