Economy and Society - Essay Example

ECONOMY AND SOCIETY by 22 April Economy and Society Introduction Throughout its history, humanity always sought to combat the reasons and consequences of poverty. Poverty always plagued society, and scholars in economic studies regularly tried to provide new, extensive, and policy-grounded explanations of poverty. John Maynard Keynes and Karl Marx represent the two different schools of economic theory. As a result, their visions and approaches to poverty are distinctly different. While Keynes links his observation of poverty to the principles of effective demand, Marx, in his turn, believes that poverty is nothing but a product of the specific modes of production which constantly revolutionizes labor and thus pushes human labor force to the backgrounds of the economic performance in society. Whether Keynesian and Marxist approaches to poverty can survive the current globalization and reduce the poverty consequences of the current financial crisis is yet to be decided, but it is clear that both theories can provide an insight into what poverty is, what poverty can be, and how it can be minimized or at least reduced to open the gateway to other, more important policy decisions. The problem of poverty Poverty and inequality are characteristic of all modern societies without any exception. They may not be visible or may not manifest themselves in some societies as brightly as in others, but they represent an object of the growing scientific interest both in economic and policy terms (Beteille 2003). The choice of poverty as the subject of the current analysis is not accidental: poverty studies date back to the beginning of the 19th century and represent a significant cluster of the economic, social, and policy knowledge which is yet far from complete. Since the very beginnings of the economic theory, professionals and scholars in economic studies sought to formulate the definition of poverty and to define its causes and consequences (Beteille 2003). Despite the growing scope of knowledge about poverty, the current research lacks unanimous agreement on what can be the best approach to eliminating poverty and inequality. The current state of economic research applies to a number of economic theories, including those of Keynes and Marx, to assess their applicability in postmodern economic conditions. Yet, none seems to offer the best, ideal resolution to the poverty issue. The topic of poverty is important as long as it is inescapable: “Every great city has one or more slums, where the working class is crowded together. True, poverty often dwells in hidden alleys close to the palaces of the rich; but, in general, a separate territory has been assigned to it, where, removed from the sight of the happier classes, it may struggle along as it can” (Harvey & Reed 1992). A brief exploration of the poverty issue from Keynesian and Marxist viewpoints will, hopefully, shed the light on what can be done to reduce the scope of poverty in the postmodern world. Poverty: Keynes and Marx In distinction from the earlier poverty paradigms, Keynesian view of poverty relies on the principles of effective demand and potential plenty, which contradict the norms of modern capitalism. “Poverty is a great evil; and economic advantage is a real good, not to be sacrificed to alternative real goods unless it is clearly of an inferior weight” (Keynes 1933). According to Keynes, poor communities face serious difficulties in their striving to employ their resources effectively, because they tend to spend a large proportion of their total income on consumption (Grabowski & Shields 2000). Even if only a small gap must be filled by investment, poor people will hardly be able “to meet their investment goals due to the lack of available capital resources” (Dillard 2005). On the contrary, affluent communities will find it difficult to maintain full employment based on the premise that their consumption is much lower than their income and thus outlets are not sufficient enough to re-channel excessive material and capital resources in investments (Brandis 1985). To find effective investment outlets, wealthy communities will have to reduce their output to the levels where they match the actual amount of investment (Dillard 2005). According to Keynes, “the richer the community the more obvious and outrageous the defects of the economic system”. As a result, poverty, according to Keynes, is the product of affluence and can only be reduced by means of effective demand management, which will provide everyone with wages and jobs, and will maintain full employment in society. Keynes votes against unconditional social assistance, which he believes reduces work incentives and distorts labor markets, causing labor inefficiency. Keynes implies that poverty can be reduced by work-based social assistance if it promotes employment and upholds aggregate demand, if it raises individual workplace productivity and supports individuals in their striving to earn genuine incomes (Jackson 1999). Keynes does not view social assistance and unemployment support as a replacement for demand management in society. He is confident that antipoverty policies must be integrally linked to high stable employment, which will limit poverty and will apply to social assistance as only a secondary element of reducing income inequality (Jackson 1999). In distinction from Keynes, Marx provides a different view on poverty, based on his beliefs in capitalism and continuous technological advancement. To some extent, Marxian beliefs about poverty parallel those of Keynes in that poverty is considered as the inevitable product of capitalist performance in any society. Marx treats poverty as the indispensable product of the modern mode of production (Harvey & Reed 1992). Modern poverty, according to Marx, is caused by the capital’s tendency to revolutionize labor productivity, which results in the displacement of workers and creates the so-called “industrial reserve army” (Harvey & Reed 1992). Absolute surplus populations are those displaced by more efficient machine-based technologies (Harvey & Reed 1992). They can either remain at home and become rural paupers, or they can move to urban areas and become unskilled members of their urban community (Harvey & Reed 1992). Relative surplus population is produces in mature capitalist societies under the effect of machines which replicate their activity; as a result, where capitalist societies create machines that allow producing greater wealth by engaging fewer workers, it also makes some share of workforce as superfluous and threatens society with poverty (Harvey & Reed 1992). Marxism is designed to promote a classless wage-earning society as the basic way to eliminate poverty and its acceptance (Peet 1975), while no capitalist society is ever possible without inequality and poverty. Keynes and Marxian antipoverty solutions: who benefits? Humanity always sought to combat the causes and consequences of poverty. Poverty always plagued society, and scholars in economic studies regularly tried to provide new, extensive, and policy-grounded explanations of poverty. Whether Keynesian approach to poverty is better than that of Marx is difficult to define. Given the significance of the issue, neither of the two discussed poverty approaches is without its fallacies. That Keynesian solutions dominated the economic thinking throughout more than 20 years does not necessarily imply that what Keynes considered to be a viable approach to poverty is preferable. The key to Keynesian poverty policies is the restoration of the state as the source of public interests, which will apply to the benefits of demand management to promote societal welfare (Davidson 2007). Keynes states that poverty can be reduced by work-based social assistance if it promotes employment and upholds aggregate demand, if it raises individual workplace productivity and supports individuals in their striving to earn genuine incomes. More importantly, the need to maintain the levels of full employment is neither consistent nor reasonable, given the levels of uncertainty in the economy: “uncertainty causes the real wage and long term rate of interest to remain for years above the rates needed for full employment. In short, uncertainty not only brings about periodic collapses; it removes the economy’s postulated ‘self-adjustment’ mechanisms” (Skidelsky 2010). As a result, Keynesian demand management principles and the full employment criteria lack clarity and consistency. So do Marxian beliefs in class society, for, according to Marx, eliminating poverty in capitalist communities is inherently impossible. Yet, it would be fair to say that poverty policy solutions must be productive and active. They should not undermine economic growth and must stimulate employment. Despite its fallacies, Keynesian vision of poverty seems closer to the current economic reality. When combined with Marxist emphasis on technology and mechanisms as the sources of poverty and unemployment, postmodern society would be able to produce a completely new vision of policy solutions, which will work for the benefit of the economic stability in short and long run. References Beteille, A 2003, ‘Poverty and inequality’, Economic and Political Weekly, vol. 38, no. 42, pp. 4455-4463. Brandis, R 1985, ‘Marx and Keynes? Marx or Keynes?’, Journal of Economic Issues, vol. 19, no. 3, pp. 643-659. Davidson, P 2007, John Maynard Keynes, London: Palgrave Macmillan. Dillard, D 2005, The economics of John Maynard Keynes: The theory of monetary policy, Kessinger Publishing. Grabowski, R & Shields, MP 2000, ‘A dynamic, Keynesian model of development’, Journal of Economic Development, vol. 25, no. 1, pp. 1-15. Harvey, DL & Reed, M 1992, ‘Paradigms of poverty: A critical assessment of contemporary perspectives’, International Journal of Politic, Culture, and Society, vol. 6, no. 2, pp. 269-297. Jackson, WA 1999, ‘Basic income and the right to work: A Keynesian approach’, Journal of Post Keynesian Economics, vol. 21, no. 4, pp. 639-662. Keynes, JM 1933, ‘National self-sufficiency’, The Yale Review, vol. 22, no. 4, pp. 755-769. Peet, R 1975, ‘Inequality and poverty: A Marxist-geographic theory’, Annals of the Association of American Geographers, vol. 65, no. 4, pp. 564-571. Skidelsky, R 2010, ‘The crisis of capitalism: Keynes versus Marx’, The Indian Journal of Industrial Relations, vol. 45, no. 3, pp. 321-335. Read More