Friday, October 1, 2010

CLASSICAL ECONOMICS



growth and economic development have a different definition, namely economic growth is the increase in output per capita is constant over the long term. Economic growth is one indicator of successful development. Thus the higher economic growth is usually higher the welfare of the community, although there are other indicators of income distribution. While economic development is an effort to increase per capita income by way of cultivating the potential economic power into the real economy through investment, technology usage, additional knowledge, skills improvement, increasing the organizational capacity and management. Economic development is defined in some sense by using different language by experts, but maksunya remain the same. According to Adam Smith's economic development is a process of fusion between population growth and technological progress (Suryana, 2000:55). Todaro (in Lepi T. Tarmidi, 1992:11) defines development as a multidimensional process involving major changes in social structure, social attitudes, national institutions as well as accelerating economic growth, inequality reduction and elimination of absolute poverty. Economic development by Irawan (2002: 5) are efforts to improve the standard of living of a nation that is often measured by the level of real income per capita. Prof. Meier (in Adisasmita, 2005: 205) defines economic development as a process of rising real income per capita in a long period of time. Sadono Sukirno (1985:13) defines economic development as a process that causes the per capita income of a resident of a community increases in the long term. The definition implies that economic development is a change that occurs on an ongoing basis through a series combination of the process in order to achieve something better that is an increase in per capita income held constant in the long term. According to Schumpeter (in Suryana, 2000:5), economic development is not harmonious or gradual process, but represents a change in the spontaneous and did not falter. Economic development is mainly caused by changes in the field of industry and trade. Economic development is associated with income per capita and national income. Income per capita is the average income of a local population while the national income is the value of production of goods and services created in an economy in the period of one year. Increased national income and per capita income over time can be used to determine the rate of economic growth and also the development of a regional level of social welfare. In terms of economic development is used as a guideline as a process that causes the per capita income of a resident of a community increases in the long term. Meanwhile, economic growth according to Prof. Simon Kuznets (in Jhingan, 2000: 57), is a long term increase in the ability of a country to provide more and more types of economic goods to its population. This ability to grow in accordance with technological advances, and institutional and ideological adjustments needed. This definition has 3 (three) components: first, the economic growth of a nation can be seen from the increasing continuous supply of goods; second, advanced technology was a factor in economic growth that determines the degree of growth capability in the provision of various kinds of goods to residents; third, the use of technology widely and efficiently requires an adjustment in the field of institutional and ideology so that innovation generated by knowledge of mankind can be utilized appropriately. With other languages, Boediono (1999:8) says economic growth is the process of increasing output in the long term.

GNP and GDP
What distinguishes between GDP and GNP (gross national product) is a transfer payment (payment factor, TR) factors of production from domestic and abroad. GDP to calculate the amount of goods and services produced within a country and do not distinguish / to see the ownership of factors of production. As for the GNP to calculate the amount of goods and services produced by factors of production owned by a country, regardless of whether the goods and services produced within or outside the country. In general, for developing countries GDP greater than the GNP.


Classical economics
a. Economy According to Adam Smith (1723-1790)

Smith is a professor of philosophy who became interested in understanding naturalist. His experience, from the school in its path, as well as from the introduction to the great scholars of his day (especially in his trip to Europe), the more mature ideas about the economic philosophy he developed later. According to Smith's human behavior has a motive of self-love, sympathy, wants independence, a sense of politeness, good work and happy to mutually exchange. This is the basis for the discussion of the theories of Adam Smith.
Operationalize economic system that grounds it is an economy with free competition, which is governed by a hidden hand. Government duty in the field of security that protect their people, uphold justice, and prepare the infrastructure and public institutions. Protection in a variety of economic activities was removed, the monopoly was abolished, and everyone knows what is best for him and what should be exchanged for others, so that the nation's wealth can be increased.
Smith's value theory is a theory that is used in production costs, although originally he used the theory of labor value. Goods have a use value and exchange value. Cost of production determines the relative prices of goods, so as to create two kinds of prices, ie natural price and base price. In the long term market prices will tend to equal the natural price. However, with the theory that value, the question arises diamond-water paradox.
Adam Smith has pioneered the theory of production and distribution functional. Source of wealth nations are land, labor skills and capital differently. Thus, the question arises namely the distribution of wage income for workers, profits for the owners of capital and land rental for the host. However, Smith has not been seen in the discussion of issues of conflict, because the basic competition harmony. In the discussion has alluded to the possibility of rental rates will increase, while the wage rate decreases. Assuming prevailing-wage funds and over time the land becomes less fertile, being with a competitive rate of profit decline of economic activity eventually reach stationary phase.
Smith argues that the division of labor is very useful in efforts to increase productivity. The division of labor will develop a specialization. Increased population means increased labor, and this will increase demand and expand markets and encourage economic growth. However, the division of labor also has a social loss, because of the monotonous work atmosphere. Some thought Smith had the principle of disobedience, and in fact it is the duty of experts and subsequent thinkers to improve and develop it.

b. Economy According to David Ricardo (1772-1823)

Ricardo came up with the pressure range of economic science on aspects of the functional distribution. Economics to find the laws that explain the forces that govern the distribution. As a theorist and also a member of parliament Ricardo influence economic policy decisions such as to overcome the bullion-controversy, corn-laws controversy. Through the theory of distribution, Ricardo stated that the protection of the wheat farmers and workers who receive benefits, but the landlords. The higher the level of land lease, because of high grain prices. So it was not because of high rents which cause the price of corn is good, but on the contrary.
Ricardo uses the theory of labor value to explain the theory of value, because it required a Benchmark that has not changed, to measure the value of other goods. Assumptions of Ricardo's theory is still used, some assumptions Smith, and reinforce the additional assumptions, such as the coefficient remains the use of labor and capital, currency neutral. Both Ricardo, and Malthus explains that the economy will, to the stationary condition.
One of the largest donations Ricardo Classical economic theory is a theory of international trade through comparative cost advantage (comparative-cost). It is also based on the existence of specialization among countries. The size is not in terms of cost differences, and differences in absolute costs, but the differences in comparative cost. However, difficulties arise to explain the amount of goods and benefits of each country to trade, due to demand factors are not taken into account.

c. Economy by John Stuart Mill (1806-1873)
At the time of Mill, growing economic science as a profession, and various criticisms of classical economic thinking (Smith, Malthus, and Ricardo) studied by Mill. Meanwhile, socialist economic ideas began to also develop this last flow even go to attack a variety of classical economic thought. Classical basic economic system is laissez-faire, the hypothesis of population Malthus, the law of the land but the more decrease, wage fund theory challenged. In the time that Mill came up with his book Principle of Political Economy, with an eclectic their thoughts.
John Stuart Mill was influenced by the ideas of his father while his father is influenced by Jeremy Bentham's utilitarian philosophy with the flow. A heavy burden in studying philosophy, politics and other social sciences, has been brought into a state of mental breakdown. Socialist economic ideas also learned that thinking also influenced his works. This was shown by his attitude toward labor unions, wage fund, personal income distribution theory, and labor protection (demand shortening working hours, child labor protection.) J.S. Gives a huge mill in the usual method of economics is deductive switch and together with the inductive method. Because the laws (hypotheses) previously have not supported by empirical evidence. In addition, his discussion of the theory of value not only seen in terms of production costs, but has used the demand side through the theory of elasticity. Because of the criticism of the functional distribution theory (Ricardo and Smith), then Mill's his opinion, that the laws which regulate production of other laws that regulate the distribution of wealth. Mill also has introduced the Investment in human capital, ie skills, crafts and moral labor to improve productivity. Mill still maintaining the need for division of labor, while capital theory borrowed from the Senior.
Another donation is on the need for inheritance taxes and taxes for landlords, because landlords do not work but it takes some value of goods and when they died inherit great wealth. In this case, indirectly, taxes can serve as a means to distribute wealth. Mill also developed a theory of international trade by looking at the demand side, thus strengthening the theory of comparative advantage.

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