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HS 419

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  1. HS 419 Lecture 4

  2. Recap • Malthus – Population growth will overshoot food production – lead to starvation – growth stops as no land available for further production • Malthus looked as scarcity of land as the major cause of ‘limit to growth’ • However Malthusian limit has been criticized as it overlooked the role of technology

  3. Recap • Ricardo while agreed that population growth a cause of ‘limit to growth’ but he included the concept of rent • According to him, there are three factors of production—land, labor, and capital goods (such as shovels)—and three classes of people—landlords, workers, and capitalists. Landlords earn rent, workers earn wages, and capitalists earn profits. Ricardo wanted to show how the total output of a society is distributed among wages, rent, and profits.

  4. No Limit to growth Growth will stop Law of Population Increase in supply of labor Reduce leads to fall in wage Wage falls to subsistence level Increase in profit Steady State Rent of land rises due to scarcity of land Demand for goods falls

  5. Stationary State • As society progresses, more and more capital is accumulated – population increases – productivity falls ( law of diminishing return) – rent rises- wage falls to subsistence level – profit falls too – economy reaches stationary state (limit to growth )- system comes to a dead halt

  6. John Stuart Mill and Steady state • J. S Mill did not favor laissez – faire . He felt that govt. intervention is needed at least in a few sectors – education, factory, legislation, public works • He distinguished between law of production and law of distribution • According to him law of production are : law of capital accumulation, law of population and law of diminishing return • Law of distribution are : the law of profit, the law of wages and the law of rent

  7. John Stuart Mill and Steady state • The law of production are universal and cannot be altered by social system but • The law of distribution are man made and can be changed as an when desired. • The pace of economic progress is regulated by laws of production

  8. Mill and economic growth • Profit - He defined profit as reward for abstinence – refraining from consuming one’s capital • Progress of the society comprises of material as well as moral progress • Material progress depends upon the increase in the nation’s wealth which in turn depends upon the quantity and quality of the factors of production.

  9. He also emphasized on moral progress. • He related wellbeing to pleasure derived from a healthy natural environment. • He also realized that economy cannot grow forever but he recognized that the scarcity of non renewable resources will act as a constraint to economic growth • Since industrial revolution made the economy dependent on fossil fuel for growth, so technology may be able to postpone the constraint but it is inevitable. • Mill worried that an excessive focus on growth would degrade the natural environment in ways that would impair human flourishing.

  10. J.S. Mill and Steady state • In lieu of unbounded growth, Mill envisioned an idealized future in which technological and cultural progress would set society on a course towards a long-run stationary state with a stable population and a high (but stable) standard of living. • A stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture and moral and social progress, as much room for improving the Art of Living, and much more likelihood of its being improved.

  11. J.S. Mill and Steady state • He did not regard the stationary state as a gloomy and undesirable state. • In such a state, quantitative progress, no doubt, comes to a halt but prospects of qualitative progress ( i.e. moral progress) are bright • The ultimate need of the economy should be stationary or steady state economy – emphasis on distribution , not production

  12. J.S. Mill and Steady state • But his argument on resource constraint became invalid when oil came up as a substitute to fossil fuel. • So again the economists became confident that growth process can continue forever without any constraint. • Although his thoughts did not receive much attention then, but they could foresee the potential threat from scarcity of resources even at the time when resources were available in abundance and there was no sign of scarcity.

  13. Concern about Environment • Classical Economists like Adam Smith, Thomas Malthus, David Ricardo and John S Mill were all concerned about limits to growth. • They were aware of the factors that can limit to increase economic activity such as population growth, natural resource scarcity and decreasing returns and profits. • Due to these limiting factors, they reckoned that economic activity couldn’t be constantly increased in long term and economies can face with stationary state which was found undesirable and even catastrophic by them, except John Stuart Mill

  14. After the passing of these economists, no concern on resource depletion or environmental issues was shown by economists