Economic Theories: Ricardo, Smith and Marx
One of David Ricardo's theories is the theory of Ricardian equivalence. Under the theory of Ricardian equivalence, government budget deficits do not change the level of consumption among consumers. The theory behind this is that, no matter when the government chooses to pay for its expenditures, citizens are ultimately responsible for paying those deficits. Therefore, people will change their spending based on government expenditures, regardless of whether the government is borrowing to pay for those expenditures.Another of David Ricardo's economic theories is the theory of comparative advantage. Under the theory of comparative advantage, a country should focus its production efforts on those items it produces best. In order to obtain items that a country finds difficult to produce, it should trade with other nations, who are, in turn, focusing their production efforts on those items they produce best. Furthermore, under the theory of comparative advantage, it may be more advantageous for country one to trade products with country two, even if country one can produce everything more cheaply than country two. In order to determine trade advantage, one looks at the ratio of the resources that go into product
One foundation of Marx's economic theory was the idea that capitalism and the concept of the free market were not beneficial to a nation's economy. Another foundation of Marx's economic theory is the concept of labor. According to Marx, labor occurs when humans transform nature. Additionally, Marx posited that people transformed nature in different manners, which were determined in part by socialization and environment. This socialization is important to Marx because Marx believed that the mode of production had two parts: the means of production, such as natural resources, and the relations of production, which included the social and environmental aspects of production. One aspect of the relation of production is the relationship between the classes, which Marx defined in terms of their access to resources. The resource that Marx stressed as the most important was an individual's control of his own power to labor, and believed that people became alienated when they gave up control over their own ability to labor. The class with greater access to resources controlled, not only the market, but the flow of ideas. In addition, Marx believed that both the means of production and the relations of production changed over time, but that the means changed more rapidly than the relations, which led to conflict. ion in various countries. A consideration of all resourc
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