Definition of Economics

Is the existence of different wages a problem for societies, and if so, how can it be remedied?

Adam Smith, and Karl Marx, both believed that labour value lies at the heart of all economic value. Commodities, goods, and services arise from the interaction of land, labour, and capital. Since Land is fixed until new land is cleared or built by workers, and since capital enhances labour and is invented by people, they both thought that the only people who added value in economic transactions were workers. This theory of labour value was qualified in the second half of the twentieth century by the elevation of entrepreneurialism as a factor of production. The enterprising businesspeople who took on risks, brought factors together, and who were rewarded with profit having been prepared to make losses, were elevated to a ‘fourth factor.’ This idea makes some sense, but also serves to undermine the idea that labour value on its own creates economic value. If labour has value, some argue that the value of time taken from a life to work should be viewed equally. This means t...

Inequality, Part One: the greatest market failure?

Income inequality arises when different consumers have different incomes, and different people have different talents. It could also arise because of the source of income or the value of the talents. For instance, employees might have different incomes from each other because of different marginal labour products, different factor returns to their labour, or different elasticities of labour. People might have different skills for which there is a greater or lesser need and employers, or the purchasers of labour might have different demands. Equally, entrepreneurs often take greater risks than others, and thereby expect and receive greater rewards than those who do not take risks. There might be different factor returns to capital or land, which result in various levels of profit, dividend, or rent, for those who do not live by the return to their labour value. A functional market would bring all these diverse groups together as suppliers and consumers and would matc...

How great a challenge does the growth of the People’s Republic of China pose for the world economy?

The PRC became committed to a policy of managed marketisation and globalisation in 1987, which was termed ‘capitalism with Chinese characteristics.’ In the decades since, economic growth has lifted more people from poverty than at any other time in history, contributed to the development of global growth, and added a third engine to global markets after North America and Europe. As China is resource-poor, its spending of surplus dollars gained in trade on African and South American markets has also lifted those areas for the first time from the dependency and postcolonial malaise identified by the Brandt Commission in 1980. Western Europe, and particularly Britain, have benefitted from Chinese investment and tourism, and have reached a position of trade balance as European and British products have been sold to the Chinese middle classes. The immediate ‘challenges’ of such growth have largely been to western institutions and wages. In the longue durée , China’s growth, and that...

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