Ricardo places his theory of distribution at the heart of understanding the traj

Question

Ricardo places his theory of distribution at the heart of understanding the trajectory of the capitalist economy over time. Explain the theorics embedded in it; his theory of rent, theory of wages and theory of profits. Why is the stationary state the inevitable outcome of the process of capitalist development? 6. Compare and contrast the views of Smith, Malthus/Ricardo and Mill on the evolution of capitalism through the growth phase and into the stationary state. Explain key points of agreement and disagreement in those views. 7.

Explanation / Answer

ans 6=

When economic development advances the real wage rate stays at the subsistence level & the profit level tends to reduce. When the capital accumulation increases with rise in profit, overall output rises which increases the wage fund. With the rise in the wage fund, populace increases which augments the demand for corn & its price level. As populace increases, poor grade lands are brought under cultivation to meet the augmented demand for corn. Ricardo presumes that workers & landlords spend their total income on consumption & thus, save nothing.

Savings are undertaken by the capitalist / profit earners. But as the society advances, the share of profit starts to fall. Decline in the profit rate adversely impacts the capital accumulation process & the development experiences a setback & in this phase , there is no further rise in capital & the economy moves into a stationary state.

Now, all capital accumulation ceases, populace doesn’t grow, the wage level is at subsistence amount & technological progress stops. ‘The fundamental casual force in this pattern is the reality of diminishing returns in farming, a bleak tendency which can be deferred temporarily thru technological progress. But technological progress can’t put a stop to the final disappearance of profit & the beginning of a stationary state’

With the augmentation in capital accumulation, profits and wages tend to rise & the rise in wages cause a fall in profits.

Hence, 'Ricardian scheme of development framed particular correlation among capital, populace & output. On the basis of these relationships, it tracks the course of rentals; profits; wages & ultimately it concedes with the famous forecast of the ultimate start of a stationary phase'.

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