EconomicsNotes

  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...

  The market system is one in which attempts to answer the basic economic problem of resource allocation in a world of scarcity by employing the price mechanism. In such a system, market price is used to allocate resources, to signal to producers and consumers what to produce and what is available, and to provide an incentive via profits and consumer surplus to sell or buy.   This means that the market will, via an ‘invisible hand’ be expected to clear the market, by selling all available goods at the prevailing price that people are willing to pay. This is contrasted with government schemes which seek to take advantage of concentrated information to make choices according to a national plan which is then imposed on producers and consumers. It has been recognised for centuries that the market system can be ‘allocatively efficient’ though it rarely is fully so.  Allocative efficiency is a state in which an economy produces goods so that the marginal cost of the producer ...