PAPM 1000 Lecture Notes - Lecture 3: Anne Robert Jacques Turgot, John Stuart Mill, James Mill
7 Sep 2018
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Main notes
● Classical political economy: heirs of Smith and Jacques Turgot, including Ricardo, Malthus,
James Mill and John Stuart Mill, Jean-Baptiste Say, Jean-Charles Leonard (Simonde) de
Sismondi, Karl Marx.
● Unity of the school?
○ Main issues are how to determine value (natural prices), analysis of economic growth
(how to maximize wealth of nations), distribution of income between classes (rent, profit,
wages).
○ They use similar methods, usually a hypothetical deductive approach (having
assumptions and then deducing what will happen from these principles).
○ Debate around poor laws (state-owned factories for the poor that were early forms of
welfare assistance, but came with lots of problems in terms of competition, etc., including
debate around whether it is ethical to save the poor from their own poverty which was
seen as a relatively conscious choice) and corn laws (tariffs that privileged domestic
production of corn but elevated prices of food. Most classical political economists are
against this as they are proponents of free markets)
○ Excluding Sismondi and Marx, they generally believe in utilitarianism through free
market competition with little public intervention.
○ Most are policy makers or entrepreneurs (elite/upper class)
● David Ricardo (1772-1823): successful financial trader. Main work is Principles of Political
Economy and Taxation.
○ His law of population compares wages to population, saying as wages rise people will
have more kids, creating more competition for jobs as population booms, lowering wages
and slowing population growth, maybe even causing death of excess workers.
■ “Natural price of labour is that price which is necessary to enable the labourers to
subsist and to perpetuate their race, without either increase or diminution”
○ Things are created using labour, machinery, and capital provided by the three classes
(workers, capitalists, land owners). The proportion of growth given to each class (through
wages, profits, and rent) depend on the stage of the society
○ On value: Smith said that labour was what creates value. Ricardo adds the value of the
rent and profit to the mix. Value is the difficulty of production.
■ Ex. a hunter can produce 3 beavers in 9 hours, making 1 beaver worth 3 hours of
labour. This is in the early and rude state of society. In an advanced society there
is capital accumulation so you need to pay for your gun (capital) and for the
ability to hunt on the land (rent). Their services are worth 3 hours of labour, so
when you return with 3 beavers you give one to your landlord and one to the
capitalist. The beaver is still worth 3 hours of labour, but it is distributed among
landowners, capitalists, and workers. You will sell it now for 9 hours of labour
b/c after 9 hours you come away with only one beaver
○ On distribution and growth: workers get wage, capitalists get profit, landlords get rent.
■ Wage is fixed at the minimum for subsistence (remember law of population?)
■ profit=(income-outlays)/outlays; profit=[income-(wage+capital)]/[wage+capital].
Division by outlays (wage+capital) gives you the rate of profit (percentage)
Document Summary
Classical political economy: heirs of smith and jacques turgot, including ricardo, malthus, James mill and john stuart mill, jean-baptiste say, jean-charles leonard (simonde) de. Main issues are how to determine value (natural prices), analysis of economic growth (how to maximize wealth of nations), distribution of income between classes (rent, profit, wages). They use similar methods, usually a hypothetical deductive approach (having assumptions and then deducing what will happen from these principles). Most classical political economists are against this as they are proponents of free markets) Excluding sismondi and marx, they generally believe in utilitarianism through free market competition with little public intervention. Most are policy makers or entrepreneurs (elite/upper class) His law of population compares wages to population, saying as wages rise people will have more kids, creating more competition for jobs as population booms, lowering wages and slowing population growth, maybe even causing death of excess workers.
