Private property has been a contested issue through the centuries. Present the v

Question

Private property has been a contested issue through the centuries. Present the views of two pre-18^th century authors who claim that there should be limits to private property. How do they justify their views? "Over the course of economic thought, the search for the source of wealth has moved economics away from focusing on exchange and towards focusing on production". Use at least three authors or schools of thought to trace this development. "The best way for a country to become rich is to increase its exports and limit its imports - all countries should aim at this exact strategy." Trace the origins of this argument and evaluate it critically.

Explanation / Answer

a) We are considering views of Aristotle and Plato, the two most famous authors, philosophers of their time.

Aristotle and Plato

Aristotle, like Plato, was hostile to economic growth and favored a static society, all of which fits with his opposition to money-making and the accumulation of wealth. The insight of old Hesiod into the economic problem as the allocation of scarce means for the satisfying of alternative wants was virtually ignored by both Plato and Aristotle, who instead counseled the virtue of scaling down one's desires to fit whatever means were available.The views of the great philosopher Aristotle are particularly important because the entire structure of his thought had an enormous and even dominant influence on the economic and social thought of the high and late Middle Ages, which considered itself Aristotelian.

Aristotle is scarcely consistent in his economic lucubrations. For although monetary exchange is condemned as immoral and unnatural, he also praises such a network of exchanges as holding the city together through mutual and reciprocal give-and-take.

The confusion in Aristotle's thought between the analytic and the "moral' is also shown in his discussion of money. On the one hand, he sees that the growth of money greatly facilitated production and exchange. He sees also that money, the medium of exchange, represents general demand, and "holds all goods together." Also money eliminates the grave problem of "double coincidence of wants', where each trader will have to desire the other man's goods directly. Now each person can sell goods for money. Furthermore, money serves as a store of values to be used for purchases in the future.

Aristotle, however, created great trouble for the future by morally condemning the lending of money at interest as "unnatural." Since money cannot be used directly, and is employed only to facilitate exchanges, it is "barren' and cannot itself increase wealth. Therefore the charging of interest, which Aristotle incorrectly thought to imply a direct productivity of money, was strongly condemned as contrary to nature.

Aristotle would have done better to avoid such hasty moral condemnation and to try to figure out why interest is, in fact, universally paid. Might there not be something "natural', after all, about a rate of interest? And if he had discovered the economic reason for the charging — and the paying — of interest, perhaps Aristotle would have understood why such charges are moral and not unnatural.

I) Although Aristotle, in the Greek tradition, scorned moneymaking and was scarcely a partisan of laissez-faire, he set forth a trenchant argument in favor of private property. Under the influence of the private-property arguments of Democritus, Aristotle delivered a cogent attack on the communism of the ruling class called for by Plato.

b) He denounced Plato's goal of the perfect unity of the state through communism by pointing out that such extreme unity runs against the diversity of mankind, and against the reciprocal advantage that everyone reaps through market exchange. Aristotle then delivered a point-by-point contrast of private as against communal property.

I. Private property is more highly productive and will therefore lead to progress. Goods owned in common by a large number of people will receive little attention, since people will mainly consult their own self-interest and will neglect all duty they can fob off on to others. In contrast, people will devote the greatest interest and care to their own property.

II. Tne of Plato's arguments for communal property is that it is conducive to social peace, since no one will be envious of, or try to grab the property of, another. Aristotle retorted that communal property would lead to continuing and intense conflict, since each will complain that he has worked harder and obtained less than others who have done little and taken more from the common store. Furthermore, not all crimes or revolutions, declared Aristotle, are powered by economic motives. As Aristotle trenchantly put it, "men do not become tyrants in order that they may not suffer cold."

III. Private property is clearly implanted in man's nature: His love of self, of money, and of property, are tied together in a natural love of exclusive ownership. Fourth, Aristotle, a great observer of past and present, pointed out that private property had existed always and everywhere.

IV. To impose communal property on society would be to disregard the record of human experience, and to leap into the new and untried. Abolishing private property would probably create more problems than it would solve.

V. Aristotle wove together his economic and moral theories by providing the brilliant insight that only private property furnishes people with the opportunity to act morally, e.g. to practice the virtues of benevolence and philanthropy. The compulsion of communal property would destroy that opportunity.

While Aristotle was critical of money-making, he still opposed any limitation — such as Plato had advocated — on an individual's accumulation of private property. Instead, education should teach people voluntarily to curb their rampant desires and thus lead them to limit their own accumulations of wealth.

Despite his cogent defense of private property and opposition to coerced limits on wealth, the aristocrat Aristotle was fully as scornful of labor and trade as his predecessors. Unfortunately, Aristotle stored up trouble for later centuries by coining a fallacious, proto-Galbraithian distinction between "natural' needs, which should be satisfied, and "unnatural' wants, which are limitless and should be abandoned. There is no plausible argument to show why, as Aristotle believes, the desires filled by subsistence labor or barter are "natural', whereas those satisfied by far more productive money exchanges are artificial, "unnatural' and therefore reprehensible. Exchanges for monetary gain are simply denounced as immoral and "unnatural', specifically such activities as retail trade, commerce, transportation and the hiring of labor Aristotle had a particular animus toward retail trade, which of course directly serves the consumer, and which he would have liked to eliminate completely.

2.

In classical economic analysis, Exchange was presumed to have an insignificant place since it was deemed to have no causative role to play in the economy.

The classicists held that Exchange is essentially "colourless" and adjusts itself to economic activity rather than the reverse. To them, Exchange was useful only as a technical device which overcame the difficulties of barter in effecting exchanges; but it did not affect the economy in any other way and was insignificant in so far as the real process of production was concerned.

In the classical view, thus, the factors determining the volume of production, the kinds and quantities of goods and services produced and consumed, the market value of different types of goods and services, and the distribution of wealth and income in the community would normally be the same in a Exchange economy as an efficient barter economy.

According to them, Exchange by itself was barren a passive element. Exchange was considered to be only a Lubricating to smoothen the exchange process involved in the real phenomena of production and distribution.

Apart from facilitating exchanges, it has least effect on the operation of an economy in any way. Metaphorically, therefore, "Exchange is the garment draped round the body of economic life" or "Exchange is the veil behind which the action of real economic forces is concealed."

Behind the "veil of Exchange", supply creates its own demand Say's law of markets working as smoothly as it would in a Exchangeless barter economy. Accordingly, Exchange only changes the mode of exchanging things from one another without making any difference to the essential character of real transactions.

It is in connection with the exchanging phenomena in a Exchange economy that the monetary facts and happenings come into being, together with the real facts and happenings.

Take the real facts and happenings away, and the monetary facts and happenings necessarily vanish with them; but take Exchange away and real facts and happenings will remain as they are. In this sense, Exchange clearly is a veil.

The Veil of Exchange:

This "veil attitude" of classical economists may further be elucidated as follows: Exchange is just a convenient means of payment. It simply facilitates the process of exchange a part of economic activity.

But it cannot determine the level of economic activity. Exchange helps to convey goods and services to the consumers; but it is not a determinant of the volume of these goods and services.

Further, the values in exchange of these commodities in real terms remain unaltered by Exchange itself. Thus, Exchange is a veil which the economist must pierce through to have a look at what is real, i.e. the production and consumption of goods and services.

It is necessary that economists must go behind Exchange prices and look at the changes in the volume of output and in "real" incomes. Though Exchange is a very important device for exchange, it is not really Exchange which people want; it is what they can buy with the Exchange.

In short, Exchange was an insignificant thing for the classical economists of the nineteenth century. In their opinion, monetary disorders were an exception rather than the rule; they rarely occurred and the resulting disturbances were insignificant since they would correct themselves.

Treating Exchange as a veil, classical economists set out their economic analysis in real terms only and propounded that supply creates its own demand; when a producer produces a commodity he creates a demand for other commodities, which he would purchase with his own commodity.

Since the classicists dealt mainly with the long- period analysis, they underestimated the effects of Exchange. They argued that in the long run the supply of Exchange tends to adjust itself to the demand for Exchange. By devoting attention to the long run with the assumption of full employment, they could analyse the operation of exchange economy in terms of barter.

Thus, in examining the working of the economic system, the classical economists looked beyond the veil of Exchange. They made their abstractions from Exchange and examined economic life as though Exchange did not exist.

They held that the prices expressed in terms of Exchange represent, ideally, the exchange ratio between real goods and services expressed in absolute terms.

Consequently, the role of Exchange in classical economics is just to determine the level of absolute prices. Classical monetary theory, then, explains only the changes in the general level of absolute prices but not their effects.

Exchange and Modern Views:

In modern economics, Exchange is assigned an active and important role. Modern economic theorists discard the classical assumption that the role of Exchange is passive and monetary disturbances are infrequent and insignificant and can be easily ignored in the long run.

To modern economists, a leading function of Exchange lies in its power and duty to regulate the general economic activity, contribute to wealth and welfare and accomplish general socio-economic reforms.

Modern monetary theory is, thus, a branch of economics that seeks to discover and explain how the use of Exchange in its various capacities affects production, distribution and consumption the three inter-related facets of economic activity.

In recent times, there has been a growing concern about the short-run operations of the economy under less than full employment conditions. Modern economists seem to follow Keynes who remarks that in the long run we are all dead; thus, modern theories are mainly concerned with short-term analysis.

It has been realised that, in the short-period, Exchange can be powerful and may promote or hinder economic activities. The monetary changes bring about changes in the working of economic forces.

Exchange and monetary policy have significant effects upon the total volume of investment, employment, output, the distribution of wealth and income among the people in a community and, thus, upon the kinds of and quantities of various goods produced and on consumption.

An increase in the amount of Exchange may lead to greater employment; if the increase is excessive, it may lead to rising prices which may alter the distribution of income in the society and may affect the volume of output perhaps favourably at first and adversely after a time.

Further, Exchange is regarded as a liquid asset so that it may be hoarded as a form of wealth. Hoarding and dishoarding of Exchange can have serious effects upon the working of an economic system.

In so far as the business cycle arises from a divergence between decisions to save and decisions to invest, it is a monetary phenomenon, which is unknown in a barter economy.

Thus, monetary facts and happenings are very important to economic life. The institution of Exchange is an extremely valuable social instrument, making a large contribution to economic welfare.

In the absence of Exchange, many of the transactions of modern economy and especially credit transactions would not be worth making and as a direct consequence, the division of labour would be hampered and lesser amount of goods and services would be produced.

Thus, the real income would not only be allocated less satisfactorily from the standpoint of economic welfare, but it would also contain a smaller amount of Exchange, if not of all sorts of goods. Obviously then, Exchange is not merely a veil or a garment.

Exchange is a key by means of which the production energies that would otherwise be latent can be released. Though Exchange itself creates nothing, it vehemently influences creation.

Chandler aptly writes: "Exchange is sterile in that by itself it can produce nothing useful, but it has a very high indirect productivity owing to its ability to facilitate exchange and sepcialisation."

Exchange does not remain merely a technical device of exchange. It affects the operative forces of the economy. However, all such effects are not always helpful. Modern economists rightly contend that Exchange often gets "out of order" sometimes in one way and sometimes in another, which considerably changes the mode of capitalist economy.

In fact, the starting point of modern monetary theory is that the flow of Exchange and the Exchange economy are inherently unstable. Keynesian analysis, which we will study later, contends that the instability of a modern capitalist economy arises primarily because of the role played by Exchange through the medium of prices.

The flow of Exchange is inherently unstable and it will not manage itself in the best interest of the economy. Here intelligent and progressive application of the monetary system tends to result in a fuller utilisation of natural resources, and in a higher standard of living.

On the other hand, a too narrow and rigid application of the monetary system is apt to hinder economic progress. The misuse of the facilities provided by the monetary system is apt to lead to grave setbacks and let loose destructive forces in the economy.

Exchange is not an unmixed blessing. If an economy is entirely left at the disposal of Exchange, or Exchange is misused, it will lead to wide fluctuations in economic performances and breed serious evils as stated below:

(i)It leads to concentration of wealth in the hands of few and gives a monopolistic advantage to its possessor so that he could exploit the other sections in the community;

(ii) It widens the inequalities of income in the society and creates class conflicts between the "haves" and the "have-nots."

(iii) Instability in its value causes many hardships to some sections in the society at different times. The changes in its value are reflected by the changes in the general price level, indicating inflationary and deflationary situations.

Inflation or deflation distorts the existing pattern of distribution of income and wealth in the society. The instability in the value of Exchange or the changes in prices naturally affect the accumulation of capital and economic activities.

(iv) Moral and ethical values of life may be sacrificed at the altar of Exchange; democratic and political institutions and organisations may become Exchange- minded.

Some control over Exchange is, therefore, quite inevitable. To quote Robertson once again: "Exchange, which is a source of so many blessings to mankind, becomes also, unless we can control it, a source of peril and confusion."

Exchange, thus, is to be deliberately managed with a view to assisting in the achievement of certain definite economic and social objectives. Exchange is to be regulated in such a way as to ensure that variations in Exchange supply occur in accordance with the needs of the society.

A wise monetary policy, therefore, is essential for the efficient working of the economic machinery.

Nevertheless, the significance of Exchange and monetary policy should not be over emphasized. The size of the national income depends upon the economic real resources rather than upon the Exchange supply.

Exchange supply cannot make up for any deficiency or scarcity in the factors of production. Monetary policy can be used to maintain the rate of production near the potential productive capacity of the economy although it is not necessarily a determinant of the potential capacity itself.

In technical jargon, Exchange supply or monetary policy can help to uplift the actual production curve up to the production possibility frontier of a country but it cannot by itself increase the potentiality of the production possibility frontier itself.

Moreover, monetary analysis cannot help in explaining everything that happens in the economic arena. We may, thus, conclude with Prof. Robertson that "it is necessary for the economics student to try from the start to pierce the monetary veil in which most business transactions are shrouded to see what is happening in terms of real goods and resources; indeed so far as possible he must penetrate further, and to see what is happening in terms of real sacrifices and satisfactions.

3. This was the argument originated when many countries got indeppendece after years of exploitation under colonialism. They believed that depending on other countries would affect their independece. they declared " the best way to become rich is to increase its exports and limit its imports. all countries should aim at this exact sstrategy." but this is not the right strategy for all countries and for any country at all times.

Suppose India is lacking in technology, then first it needs ot finance its imports to import technology so that in the long run, its exports may increase.

Effect of Import Liberalization on Indian Economy:

Positive Effects:

Critics:

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.