Neoclassical Economics Theory

The Different Range to Economic Theory by Marx and Neoclassical Economics

According to Marx, all goods that are produced in the capitalism are market-based. The ruling class owns all means of production. Private property is protected by the government. Labor should be wage-based. In his book Capital, Marx wrote that capitalism is a kind of management where the working class that is the main producer of goods does not own the means of production. The bourgeoisie that is the ruling class in a capitalist society keeps under control the productive assets as private property. Their ownership empowers them to organize the working process. Employees have to create working relation by economic necessity. Thus, all employees while hiring to work should make a contract between them and employers. This agreement should be based on wages.

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In fact, the capitalists buy the workers labor by a certain sum of money representing the exchange-value. Determining the amount of wages, professional skills are not practically taken into consideration. The amount of wages depends on the working hours. Marx study of political economy asserts that any product has its value and use-value. When the product is sold in the market it has an exchange-value. Marks noted that any goods that are sold in the market have a general utility because customers buy them and show their necessity in these products. Marx regarded market as a place where goods are sold and not as free place that can change. According to Marx, usefulness and exchangeability should be explained by use-value and exchange-value that are actually two different concepts. On the other hand, neoclassical theorists explain usefulness and exchangeability by the only concept: utility. Marxs labor theory of value has become the foundation to all his social theories.

Neoclassical economics theory is based on the notion that demands of free markets shape economic in a democratic society. Every individual stands on the top of a society. Neoclassical economists consider the micro level of the market. Individualism of free market is a major concern of neoclassical economic theory. While Marx argued that individual behavior depends on social norms and economic institutions, neoclassical economists reported that a countrys economy is conditioned on individuals and their behavior. Thus, they assume that individual behavior determines economic institutions. From the point of view of neoclassical economics theory, economists should understand behavior of the people. Neoclassical economics underlines that individualism is a vital concept in economics. Thus, individual tastes and utility have a great influence on economic relation in a society. Neoclassical economists believe that markets are flexible and changeable they are never stable. Their functioning depends on supply and demand. Alfred Marshall was the first neoclassical economist who introduced this concept into economic theory. Neoclassical economics theory is based on mathematics and statistics that investigate supply and demand.

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The Different Conceptions of Objectivity and Subjectivity in the Two Theories

Marxs concept of objectivity and subjectivity differs from neoclassical theorists. Thus, Marx argued that thinking is practically subjective activity and objective world is overviewed as something fixed and stable. Neoclassicists argued that subjectivity and objectivity are usually interrelated with each other. According to Marx, society and individuals are distinct. Marxs Labor Theory of Value is objective. Marx considered that the starting point was production and cost of products. He denied the importance of demand and its influence upon value. Therefore, incomes have been received by production only. Marxs theory of value was focused on the correlation between macro-economics and micro-economics. Marx asserted that s synthesis of these two concepts could achieve success.

Neo-classical economists viewed the problem differently. They were the followers of the only concepts, e.g. micro-economics. They considered that a value of commodities should be evaluated separately. According to neo-classicists, demand is the main determinant of value. They proclaimed that exchange value depends upon the utility of the goods. Marx denied the direct influence of demand upon value. Marxs labor theory of value is a result of his study of capital, money, alienation and fetishism. It has many followers as well as opponents. This theory and its disagreement with neoclassical theorists were of the greatest importance for the further development of new concepts in economic theory. Historically, the opponents of the one flow did not recognize the existence of the other. However, both concepts are valuable and play an important role in economics and society.

The Different Role of Quantity in the Two Theories

Marx determined the quantity of money by circulation. For Marx, the quantity theory was the main obstacle to understanding money. Neo-classical economists viewed money as a special tool to measuring commodities. Its quantity is established by state as a means to measuring goods and values. Marx argued that the quantity theory was false. He considered that the main function of money is circulation. He did not agree that money could be a commodity. According to him, money could not be the value of things because they were established by states. He estimated a quantity of money as price for commodities. The prices of commodities are not real. Marx assumed that the quantity of money was not real, only gold and its value could be real. Money is not worth the amount written on them. He assumed that money should be used to measure the value of things. He concluded that the role of quantity is useful.

Neo-classical role of quantity requires to accepting money like any other commodity. Marginal value of money decreases when supply increases. Any time when the producers increase supply of their products and goods, they should decrease prices. Neo-classical theory economics is prone to assume that when money supply increases the flow of money and income increase too. Many theorists consider that increasing money supply is useful for real economic processes such as production and spending, for example. Any state economy depends on the quantity of money and its influence on the prices of commodities.

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The Different Understanding of What Makes a Thing Useful

Any business is functioning to making money. As a rule, most economists agree that money gives power and security. However, reaching their goal they came to the conclusion that oftentimes their efforts are useful. They can neither find freedom nor security. Although neo-classical theories are quite popular throughout the world, their theories are criticized. The amount of money always is not enough. Its indicator might be satisfactory only for a short period of time. Any amount of money or a thing can be useful unless a person does not need it no more. Everything may be useful in accordance to its quantity and quality. According to Marx, a thing may be useful because of its labor-value and use-value. Quantity and quality depend on the diverse nature of commodities. Commodities that do not satisfy peoples needs and wants are useful.

According to Marx, products and goods that customers buy in the market have a use-value to them. He assumes that this value may differ from the use-value of things. Neo-classical theorists argue that prices make thing useful. Prices indicate the utility of things for buyers. Neo-classical economists consider that a buyer is the main evaluator of the utility of things. This approach is subjective, while the Marxs approach is objective.

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