Issues in Classical Political Economy 8
Issues in Classical Political Economy View Comments
1. Review of the discussions on competition
(1) The ways how to competition operate in the capitalist system: In Marxian perspective, the competition can be described as a war against each other. Competition has a selective structure (filtering effects on the introduction of machinery) but this does not imply the optimal equilibrium. There is no guarantee the general increase of profitability. Competition is driven by profit gain. This process leads to constant expansion and conflicts among capital.
(2) The laws of competition (common characteristics of classical political economists)
① Competition within an industry:
ⅰ. Competition within an industry forces a roughly common price on individual sellers
ⅱ. Competition lower the cost as an active policy (lowering the cost is an imperative). This price cutting (setting) tendencies lead to one company’s winning the market share and its defeating the uncompetitive firms. But the winner does not imply or represent the optimal equilibrium.
ⅲ. Competition makes new plant of equipment constantly come in displacing the old leading to reduced/ lowered cost.
ⅳ. Considering there are various firms and competitors with different technologies and thus the different margin of profits/ the rate of profit, and given the condition that there exist common price, this tendency of lowering the cost of the firm will bring about higher unit profit. Thus, competition equalizes the price but dis-equalizes the rate of profit.
② Competition among/between industries:
- Competition among and between industries will make the profit on the new investment (in regulating capitals) roughly equal.
- This notion of competition is totally different from that of ‘perfect competition.’
③ Competition across regions/nations:
- If the competition has these properties in the capitalist system, what are the implications for international trade? This issue lead to the problem of foreign trade.
- Every region does not have the equal average rate of profit and the relative price of any two goods are regulated by the relative real cost (direct and indirect unit labor cost)
2. Karl Marx’s theory of international trade (in comparison with David Ricardo)
(1) In Marxian perspective, the competition among nations and different regions leads to ‘unequal exchange’ among them.
(2) Two different theories of international trade: Px($)/Pn(yen) * XR(yen/$) = XR(Yen/$)/ Pm(yen)/Px($)
ⅰ. Smith and Marx:
- There is no guarantee to full employment and there is no guarantee to effective factor endowments (specialization of employments).
- According to them, the Third Worlds countries (Underdeveloped Capitalist Regions; UCR) will decline and lead to trade deficit if they are engaging in international trade. Gold money inflow from the
- Unlike the Ricardian theory of international trade, the foreign trade is determined by real cost (relative quantity of labor time required for manufacturing goods and labor time for import/ export)
ⅱ. Ricardo and Post-Keynesian and Neoclassical economists
- The underlying assumption behind the Ricardo and Neoclassical economy is that those countries which are engaging in the foreign trade will mutually better off and this trade will lead to trade balance. Likewise, full employment and the trade balance are two presuppositions to modern international trade theory.
- David Ricardo’s theory of foreign trade: Ricardo drops the ideas of two relative prices will not be regulated by relative costs, but rather will lead automatically to balance trade via his quantity theory of money.
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