Evolution of economics ideas
Discussion 1 – Classical Political Economy
3) What are the units of analysis of classical political economy? Try to compare the units of analysis of
classical political economy with those of modern microeconomics and macroeconomics.
In the classical political economy the units of analysis are commodity prices, worker wages, lands rents and
masters profits. In the following centuries the humane society is gone through huge changes and this
modified also economics unit of analysis. Both social changes as industrial revolution or economic
globalization, and theoretical innovations as the introduction of Keynesian macroeconomic analysis or the
developing of utility theory has made the economic benchmark different. Nowadays micro-economists
units of analysis are individual utility and game theoretical strategies. On the other side of the river macroeconomists speculates on aggregate consumption, savings, public debt, output growth and interest rates.
5) What are the main problems of the classical theory of value?
If we consider Smith’s cost-of-production theory of value, its main problem is that since a price (of the
output) is explained by other prices (of the inputs) this theory is circular and shifts the problem of value to
the theory of distribution
If we refer to Ricardo’s labour-embodied theory of value it has a several number of problems:
It does not hold for commodities whose supply cannot be increased by labour
It does not explain the exchange value of the commodities whose supply can be increased by
labour at a constant cost
It does not take into account that the price of commodities the supply of which can be increase but
labour at increasing cost depend also on the demand of these commodities
It does not give a scientific foundation to the intensity of the rate of profits on the exchange ratios
between commodities that contain different proportions of direct and indirect labour....